Almost every technical analyst in the world is betting on India. And the analysis is not just like that. There are some facts which prove that investing in equity, here in India, is truly beneficial.
15% is what the sensex, an index maintained by Bombay Stock Exchange (BSE), has grown at since its inception in 1980 when it started with 100 points which is also a reflection of corporate earnings growth. And now that India had crossed the development threshold, it is certain that we can earn at least 20% in the next 15 years by carefully selecting the stocks or scripts. Though the risk is always there but current trends are showing signs of prosperity.
You should definitely take experts' advice if you don't have time due to job constraints. But as I said just take advices and make your own cautious decision. The best way to do that is to invest through equity based mutual funds, insurance plans, pension plans etc. Checking for top performing funds over the past three years is a good idea to get started with.
Following table shows projected accumulation of money assuming a monthly investment of Rs. 1000.
| Period of Investment (in Years) | Money Invested | Accumulated Money (Assuming 10% Growth) | Accumulated Money (Assuming 15% Growth) | Accumulated Money (Assuming 20% Growth) | Accumulated Money (Assuming 25% Growth) |
|---|---|---|---|---|---|
| 10 | 120000 | 206552.02 | 278657.27 | 382363.55 | 532804.66 |
| 15 | 180000 | 417924.27 | 676863.09 | 1134294.9 | 1955784.78 |
| 20 | 240000 | 765696.91 | 1515954.97 | 3161479.37 | 6859095.24 |
| 25 | 300000 | 1337890.35 | 3284073.74 | 8626708.15 | 23754941.59 |
| 30 | 360000 | 2279325.32 | 7009820.61 | 23360801.76 | 81974714.95 |
The table clearly shows that if we start investing early there are good chances that we will have a bright retirement ahead. Take for example, if you are 30 years of age and invest systematically till you are 60 i.e. for 30 years then the accumulated sum is around 70 lakh assuming growth of 15% and more than 2 crore assuming growth of 20%. If you wait for five years and then start investing and planning to retire at 60 then you will have less than 1 crore even if the average growth is 20%. So start early is the mantra.
To start planning, suppose your monthly expenses excluding any type of loan is around 20K. And if inflation is flat 5% all through 30 years then you would need around 90K every month that time. Which means around 11 lakhs every year. And suppose if you want to buy annuity for pension at that time which gives 5% pension then we would need a corpus of around 2.2 crore. By looking the table above if 1000 rupees is invested every month for 30 years and assuming growth of 20% then we can easily accumulate this amount. If the growth is 15% then we need to invest around 3500 rupees every month to accumulate approximately 2.2 crore.
You can adjust figures according to your age and the time you want to retire. Age of retirement can be decided by you but mininum age is different for different investment companies. For some it is 40 (LIC of India) and for some it is 50 (HDFC). And also not all companies have equity linked pension plans and mutual funds.
I hope that the post will be useful to many of you in planning your retirement.
2 comments:
Hi Pankaj,
Thanks for your post. I think it is a very well calculated statistics.We always have some 10%our income as put as saving but saving in form of pure equaity i guess whole depends on risk appetite of a person.
Though we are seeing a phenominal growth of index from 12000 to cross 15000 in just 2-3 years but still i feel we shud diversified our invesment to various schemes.
Our portfolio should include some Insurance whether life or term insurance , some one should also invest in government securities as NSE,FD and other just to minimise the risk and one should defintly go for MF.
Well your belogs shows us a dream of becoming a crorepati after few years :)
Pls do write some of the MF scheme that we can go for....
Thanks
Vipul
Thanks for the feedback Vipul.
As I mentioned the average growth has been 15% since 1980 i.e. during the slow growth period. So we can safely assume a similar growth in the next 30 years. And Vipul, market was less then 6000 in 2003 and has touched 16000 last month. This implies a growth of about 27%.
Mutual fund themselves are diversified. So no need to diversify again at one level up. My personal choice in managing mutual funds is HDFC (any equity fund). Because of two reasons:-
1. HDFC has a consistence best performance record.
2. HDFC is Indian. All profit remains within India.
Apart from these one should definitely invest in Insurance as soon as possible because premium cost increases significantly along with our age. And my personal opinion is to not club Investment and Insurance in a single plan. Better is to buy term insurance plan because these are cheap and invest remaining amount in Equity, may be through Mutual Funds.
Investing in NSS, FD is a nice option if your employer doesn't have PF account with government. If PF option is available you should contribute more in PF.
The investment shown in the illustration in the post was assumed to be INR 1000. Which I hope is not a large amount.
I have updated the post to include a much conservative rate of 10% as well as much aggressive rate of 25%. This will help everybody to diversify investments into various risk levels.
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