- Starting early may help you save big corpus even with small amount
- Effect of compounding increases with the increase of tenure of investment
- Saving just Rs 100 a day can help you accumulate Rs 1 crore in 30 years
|Time required to earn Rs 1 crore||Monthly Investment Required|
|20 Years||Rs 21,535||Rs 16,864||Rs 13,060||Rs 6,596|
|25 Years||Rs 14,358||Rs 10,445||Rs 7,474||Rs 5,269|
|30 Years||Rs 9,905||Rs 6,665||Rs 4,387||Rs 2,832|
As you can see in the above table, you need to save Rs 16,864 every month to accumulate Rs 1 crore wealth in 20 years if your wealth grows at a compounding rate (quarterly compounding) of 8 per cent. In this case, you contribute around Rs 40.47 lakh to accumulate savings of Rs 1 crore in 20 years and the remaining comes from the interest component.
To accumulate the same Rs 1 crore in 30 years at 8 per cent return, you need to save Rs 6,665 every month. But in this case, you contribute only Rs 24 lakh to accumulate Rs 1 crore wealth with the remaining Rs 76 lakh coming from interest component. This happens because of the power of compounding, which means your interest earns interest for you.
In case of compounding, the longer will be the tenure of investing, the more will be the interest component. So if you start early, you can accumulate big wealth even with a small amount of saving.
But if you can cope with higher volatility, you have other options like equity mutual funds, balanced funds and hybrid funds which can generate higher returns over the long term. Financial planners say that those in their early careers can take some exposure to equity funds and gradually reduce it as they approach retirement.
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