’30-30′ formula to become a millionaire: Need a retirement fund of ₹5 crore at the age of 60? Know how much SIP will have to be done every month from the age of 30. 30-30 formula SIP calculation

It is very important to have a strong retirement corpus to live a wonderful and stress-free life after retirement. Considering today’s busy life, rising inflation and medical expenses, financial experts believe that there should be a minimum corpus of ₹5 crore for retirement. If you are 30 years old and you are dreaming of accumulating ₹5 crore by the age of 60 (i.e. in the next 30 years), then the ’30-30 Formula’ of mutual funds can prove to be a game-changer for you. Creating a fund worth crores through this formula of disciplined investment is not an imaginary pot, but a mathematical truth.

The ’30-30′ formula simply means – start investing at the age of 30 and maintain the investment in a disciplined manner for a period of 30 years (i.e. till the age of 60).

Since you have a long time horizon of 30 years, the magic of ‘compounding’ works best in a Systematic Investment Plan (SIP) of a mutual fund. The longer the period, the bigger the returns on your small amount invested. The returns may seem slow in the beginning, but in the last 10 years it increases at rocket speed.

To build a corpus of ₹5 crore, your monthly SIP amount depends on the average expected returns you get for the next 30 years. Equity mutual funds generally give a comfortable annual return (CAGR) of 12% to 15% over the long term. Let us understand this through a clear table:

(Note: This calculation is purely approximate. Actual returns are subject to change depending on stock market fluctuations and fund performance.)

If your salary at the age of 30 is not very high and you cannot invest a lump sum of ₹ 14,000 every month, then you should choose the great option of ‘Step-Up SIP’.

Step-up SIP means that you start with a small amount and increase the SIP amount by a fixed percentage every year as your salary increases.

• Mathematic: If you assume 12% expected returns and increase your SIP by 10% every year, then to reach the target of ₹5 crore you will have to invest at the age of 30. Just ₹5,400 to ₹5,500 per month Have to start from.

• Benefit: This will not put a heavy burden on your existing budget. In the first year you will invest Rs 5,500 every month, in the second year you will increase it to Rs 6,050, and so on, increasing it by 10% every year.

The biggest rule in SIP is that you should not stop investing out of panic due to market decline. If you look at the above calculation (12% return) carefully, then in 30 years you invest only about Rs 51 lakh from your own pocket. But the compound interest (return) you get on your investment is more than ₹ 4.49 crore. This simply means that 90% of your retirement fund of Rs 5 crore is solely due to the power of compounding.

• Don’t forget inflation: The value of today’s ₹5 crore will reduce after 30 years due to inflation. At an average inflation rate of 6%, the purchasing power of Rs 5 crore today will be equal to about Rs 85 lakh after 30 years. Therefore, do not forget to top-up your SIP from time to time.

• Diversification is necessary: Instead of investing all your money in a single mutual fund, invest it by dividing it among large-cap, flexi-cap, mid-cap and index funds, so that the risk remains less.

• Stick to discipline: In its long journey of 30 years, the stock market will suffer big falls many times. Do not stop your SIP out of fear at such a time, because in a falling market you get more units which give bumper profits in the future.

(Disclaimer: Investments in stock market and mutual funds are subject to market risks. Please consult your SEBI registered financial advisor before making any investment.)