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.
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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.
This article was originally published on July 14, 2011.
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