BHUBANESWAR: Retiring early is every working professional’s dream. But, most people often think about retirement when they pass a specific age and then it is too late to reach their goals. While there are no set rules and formulas to build an ideal corpus because everyone has a different financial situation on their hands, all you need is to invest regularly, and balance debt, savings and expenditure mix. The rest will be taken care of by the power of compounding.
If you can save a paltry Rs 50 a day, the rewards can be far greater. Can you imagine, for instance, how much money you will be able to make over 40 years by just saving Rs 50 a day and investing that amount every month in a saving instrument that gives just 8 per cent return per annum? That’s a whopping Rs 52.25 lakh if the interest on your investment is compounded quarterly. Of this, only Rs 7.2 lakh is the principal amount, while Rs 45 lakh is the interest earned.
Many do not realise that Rs 500 a month is actually Rs 6,000 a year and Rs 1.2 lakh over 20 years. Considering people have different risk profiles, investment horizons and choice, let’s inspect various avenues where you can start investing with less than Rs 500 a month.
Mutual Funds
This instrument allows you to do systematic investment plans. You can invest as low as Rs 100 a month in some and Rs 500 a month in some other schemes including equity funds, debt funds, hybrid funds and gold schemes. The investment returns are linked to performance of the underlying assets — while debt funds would on an average yield nearly 7-8 per cent, equity funds yield around 15 per cent based on past performance. According to Anil Rego, founder and CEO, Right Horizons, if you invest Rs 500 a month for 20 years in an equity fund giving 15 per annual return, you can get Rs 7.5 lakh at the end of the term.
Atal Pension Yojana
This is a universal social security scheme. Under this, a subscriber would receive the fixed minimum pension in the range of Rs 1,000-5,000 per month at the age of 60, depending on his/her contributions, which itself is based on the age while joining. It allows you to invest small amounts every month. “A person in the age group of 25-30 years can pay about Rs 300-500 a month to get a Rs 5,000 guaranteed pension after turning 60,” Rego noted.
Fixed/Recurring Deposits
FDs and RDs are traditional investment favourites. For most old commercial banks, FD interest rates hover between 6.5 and 7.25 per cent. Most private banks allow you to deposit a minimum of Rs 500 per month and thereafter in multiples of Rs 100. RDs allow you to invest every month for the tenure you have chosen and may be used for a loan against the deposit. RDs and FDs have similar interest rates.