Easy retirement: This is how you can accumulate Rs 5 crore by the age of 45. Check details on how to invest

We all aspire to have an easy and comfortable retirement. Therefore, to acquire financial security, most investors are advised to start their investment journey very early in life. Along with, easy retirement, many young workers are now aspiring to retire early in their 40s. Retirement objectives hold significant importance as the financial reserves accrued over the years are utilised during the post-retirement phase, which for most individuals spans a considerable length of time. 

Typically, retirement is projected to last for 20-25 years under standard circumstances; however, this duration extends for the investors opting for early retirement. It is probable that individuals planning for early retirement may engage in consultancy or other forms of work post-retirement, albeit earning a reduced income compared to their previous endeavours.

Investing in mutual funds is considered one of the best ways to build a sizable corpus over time. Mutual funds provide diverse products tailored to meet various investment goals, including capital appreciation (growth), capital preservation, regular income, liquidity, and tax-saving opportunities. Moreover, mutual funds present different investment plans, such as growth and dividend options, to suit the preferences of investors striving towards financial growth and stability.

How much SIP amount is needed

As per the calculations of a Systematic Investment Plan (SIP) calculator provided by a mutual fund, it is projected that even a 20-year-old individual can amass a substantial corpus totaling Rs 5 crore by the time they reach 45 years of age. This achievement is feasible with an anticipated return rate of 12 per cent. 

Effectively, within the forthcoming 25 years, commencing from the age of 20 to 45, the 20-year-old investor has the capability to secure a significant corpus of Rs 5 crore. The required monthly SIP amount for this ambitious goal is determined to be Rs 26,500. This sum comprises an investment outlay of Rs 79,50,000 along with an estimated return amounting to Rs 4.23 crore (Rs 4,23,37,330 precise).

Furthermore, if an individual chooses to embark on their mutual fund investment journey at the age of 25, with the objective of retiring by the age of 45 with a corpus target of Rs 5 crore, the monthly investment commitment escalates to Rs 50,000. However, under the circumstance of the mutual fund scheme yielding superior returns, the envisioned financial milestone could conceivably be reached at an earlier point in time.

Choice of funds

For your financial goals, it is important to have a strategic investment plan in place. In order to achieve your goal, it is advisable to have a well-balanced portfolio consisting of both equity and debt instruments. To start with, consider allocating a significant portion of your investments towards equity mutual funds. These funds have the potential to offer substantial growth opportunities over time. Simultaneously, it is crucial to establish an emergency fund totaling approximately Rs 15 lakh. This can be achieved by investing in secure debt instruments such as Fixed Deposits (FDs) or debt mutual funds.

For example, if you want to accumulate a targeted corpus of 1 crore within the next 5 years, then initiating a monthly Systematic Investment Plan (SIP) in diversified equity funds is essential. It is advisable to start the SIP with an amount around Rs 1 lakh. Additionally, diversifying your investments across large-cap, mid-cap, and small-cap funds based on your risk tolerance is recommended.

Here are some mutual fund options to consider: Nippon India Large Cap Fund, HDFC Top 100 Fund, UTI Nifty 50 Index Fund Direct, Tata Small Cap Fund Direct, Kotak MultiCap Fund, Franklin India Smaller Companies Fund, SBI Contra Direct Plan-Growth, Nippon India Growth Fund Direct- Growth, Quant Small Cap Fund, ICICI Prudential Bluechip Fund Direct-Growth, Mahindra Manulife Multi Cap Fund - Direct Plan, Parag Parikh Flexi Cap Fund, SBI Large & Midcap Fund Direct Plan-Growth, Axis Multi Cap Fund, and others

These funds were specifically chosen based on their track records and performance. Remember to monitor the performance of your investments regularly and make adjustments as necessary to align with your financial goals and risk appetite.

Besides, one can also invest in National Pension Scheme, which comes with a tax relief. One needs to note that after reaching maturity, it is absolutely necessary that you allocate a minimum of 40% of the total amount into an annuity plan under NPS. 

The NPS is designed to offer you a consistent source of income post-retirement. Furthermore, there is a provision where you can choose to invest the entire corpus, up to 100%, into an annuity scheme. To enjoy tax-free withdrawals, it is vital to put 40% of the corpus into an annuity, allowing you to receive the remaining 60% without any tax implications.

Investment option

An investor has the option to invest in mutual funds directly through a 'Direct Plan' without using a distributor/agent. In contrast, they can also opt to invest in MF schemes with the assistance of a distributor/agent, known as a 'Regular Plan'.

Both the Direct and Regular plans are components of the same mutual fund scheme, sharing a common portfolio and managed by the identical fund manager. The returns of any direct mutual fund are always higher than the regular version of the same mutual fund. The primary reason for this difference is the 'expense ratio'. The expense ratio is lower for direct plans compared to regular plans. This lower expense ratio in direct plans leads to higher returns for investors.

The Net Asset Value (NAV) of any direct mutual fund always more than that of the regular version of the same mutual fund. The NAV signifies the value of a single unit of the mutual fund and is determined by dividing the total assets owned by the fund by the number of units outstanding. The elevated NAV in direct mutual funds signifies superior performance and potentially increased returns for investors when juxtaposed with regular mutual funds.