I am 31 and have received a lump sum amount of Rs 10 lakh. I want to use this money to build my retirement corpus. I have two plans. One is that I divide the sum in three parts, invest them in three good mutual funds and track them regularly. Else, I can invest this money in a trusted company deposit and invest the monthly proceeds in mutual funds through a systematic investment plan (SIP). I have already shortlisted the deposit and expect a 10.5 per cent annual interest rate. My qualm is that SIP can never beat lump sum investments. What should I do?
Assuming a retirement age of 55, life expectancy of 80 and current expenses of Rs 50,000 a month, you will need a retirement corpus of Rs 4.4 crore in 2034. To achieve this, you need a lump sum investment of around Rs 26 lakh today, invested in an appropriate asset allocation of equity and debt mutual funds earning 12.6 per cent. Alternatively, you can build the required corpus through a lump sum investment, coupled with monthly investments. It is not recommended to invest in company deposits, as they are high on liquidity and credit risk. A lump sum investment of Rs 10 lakh today, in an aggressive portfolio, will grow to around Rs 1.7 crore by then. The balance will be required to be funded through an SIP of approximately Rs 14,500 a month. This amount will be invested systematically through equity funds and debt funds in an aggressive asset allocation.
The writer is the founder & CEO, Freedom Financial Planners. Send in your queries to yourmoney@bsmail.in