1. The single most important objective for an investor nearing his retirement is to earn an income that fights inflation during his retired life which could even extend beyond 30 years.
2. The fixed interest income from traditional investments might look good in nominal rupee terms, but inflation is a number that compounds year after year.
3. An interest income of 9 lakhs from a corpus of 1 crore might look more than adequate today, but if real inflation were 7-8%, the expenses will double every 10 years.
4. Therefore, the corpus should also double to keep him afloat, but since he sought capital protection to earn an interest income, his corpus will remain unchanged.
5. If he lives for 25-30 years after retirement, penury will hit him at an age when increasing the corpus in any manner would be impossible to achieve.
6. Hence, his investment decisions should take on board the core objective that his corpus should continue to grow and compound in value so that it fights inflation, while he draws income from it as required.
7. This is where a long-term SIP investment, during his working years in a balanced equity fund, would serve both purposes.
8. A back-of-the-envelope calculation shows that he can accumulate a tax-free retirement corpus of Rs.2 Crores through a monthly SIP of just Rs.5,000 during his 30 years of working life.
9. After retirement, he can easily draw an inflation-friendly monthly retirement income of Rs.80,000 throughout his retired life, besides preserving his corpus for bequeathing to his near ones.
10. That's the power of compounding and systematic investment in a simple balanced equity fund.
2. The fixed interest income from traditional investments might look good in nominal rupee terms, but inflation is a number that compounds year after year.
3. An interest income of 9 lakhs from a corpus of 1 crore might look more than adequate today, but if real inflation were 7-8%, the expenses will double every 10 years.
4. Therefore, the corpus should also double to keep him afloat, but since he sought capital protection to earn an interest income, his corpus will remain unchanged.
5. If he lives for 25-30 years after retirement, penury will hit him at an age when increasing the corpus in any manner would be impossible to achieve.
6. Hence, his investment decisions should take on board the core objective that his corpus should continue to grow and compound in value so that it fights inflation, while he draws income from it as required.
7. This is where a long-term SIP investment, during his working years in a balanced equity fund, would serve both purposes.
8. A back-of-the-envelope calculation shows that he can accumulate a tax-free retirement corpus of Rs.2 Crores through a monthly SIP of just Rs.5,000 during his 30 years of working life.
9. After retirement, he can easily draw an inflation-friendly monthly retirement income of Rs.80,000 throughout his retired life, besides preserving his corpus for bequeathing to his near ones.
10. That's the power of compounding and systematic investment in a simple balanced equity fund.