VR Logo

Starting Right

Beginning investments early & increasing the amount every year will hold you in good stead

I am 25 and want to invest for my retirement. I plan to systematically invest `5,000 in an index fund. I am planning to increase the investment by 10 per cent every year. How much of a corpus can I accumulate over 30 years? Is an index fund a right move? — Santosh

You are doing a number of things right.
Starting to save for retirement at a very young age, investing in an equity fund systematically and planning to increase that amount by 10 per cent every year. All these will hold you in good stead over the long run.
If you invest just Rs 5,000 for the next 35 years in a portfolio that earns an annualised 12 per cent, you can achieve a corpus of Rs 3.24 crore for your retirement. The same corpus swells to Rs 7.42 crore if the portfolio earns 15 per cent. This is the combined impact of the power of compounding and systematic investing.


Suggested Schemes
Scheme Name  Category  Rating  3-yr Ret (%)
DSPBR Micro Cap Reg Equity: Mid & Small **** 20.89
Fidelity Equity Equity: Large & Mid ***** 19.2
HDFC Balanced Hybrid: Equity Oriented ***** 22.9
Rating as on 30th Jun 2011
Returns s on 13th Jul 2011
However, our concern is on your selection of an index fund. There are numerous funds that have outperformed their benchmarks over the years. In India, being a growth economy, there still is a strong case for active fund mangement. You should capitalise on it. Take a look at the funds we have recommended.
Instead of investing Rs 5,000 in a single fund, split it between two or three funds. If you plan for two funds, then start with Rs 2,500 in each. If you are opting for three, then do an SIP of Rs 2,000 in each of the equity funds and an SIP of Rs 1,000 in a balanced fund.
What you need is to track your investments in these funds at least once a year and adopt your strategy of increasing investments in them by 10 per cent annually to achieve a sizeable retirement portfolio.



Post Your Query