Short-term Pain, Long-term Gain: Invest Rs 1 lakh bonus diligently and sit tight! At 12%, what 3 years of investment can do for your retirement

You may have already read about the annualised returns that many investors expect from their mutual fund investments. But have you tried to quantify the overall outcome of such returns by assigning actual numbers to your situation? In this article, let’s study a situation where, let’s say, you make it a point not to spend away your annual bonus or savings of Rs 1 lakh for just three years, followed by a comfortable Rs 1,000 monthly SIP for the next 27 years, and let the money grow till you turn 60. This way, if you start this when you are 30 years old, your investment at the end of three years will get at least 27 years to compound (till you turn 60). 

Add a carefully selected and well researched fund or any other instrument to the equation, and you could have set sails towards making your financial dream a reality. 

Let’s quickly look at the scenario in our example: 

• Investment starting age: 30
• Investment amount: Rs 3 lakh (three years of Rs 1 lakh investment) + Rs 3.24 lakh (27 years of monthly SIPs of Rs 1,000)
• Total period of investment from first investment: 30 years
• Total period of monthly investments: 27 years
• Assumed annualised return: 12 per cent

Ready?

Assuming that you get an annualised 12 per cent return, your annual SIP of Rs 1 lakh is estimated to grow to approximately Rs 3.78  lakh at the end of the first three years (and before the remaining 27 years of compounding), calculations show. 

After this period, you will stop making annual SIPs, which means that this amount will compound unless you liquidate it. 

By the time you turn 60, this amount will reach approximately Rs 80.59 lakh, at 12 per cent, as per calculations. 

Now, if you start a monthly SIP of Rs 1,000 starting at the end of the first three years of investments, you will end up investing a sum of Rs 3.24 lakh in 27 years, which should grow to Rs 24.37 lakh at 12 per cent by the time you turn 60. 

This way, at the end of the 30-year period, at age 60, you will have accumulated approximately Rs 1.05 crore, calculations show. This includes your three annual and 324 monthly SIPs.

ALSO READ: From 0 to Rs 1 crore: The monthly SIP & one-time investment you need to achieve Rs 1 crore corpus in 5-20 years...

Here's a summary of these calculations and estimates: 

Disclaimer: These calculations, assumptions, and estimates are illustrative and for informational purposes only. Please consult a qualified financial advisor before making investment decisions.