You must adjust financial plans to varying inflation and returns
You will need to inflate your goal amount as prices will not remain the same. You won't be able to afford the same lifestyle in future with the same income.
Rs 1 lakh today will be worth nearly Rs 1.5 lakh in 10 ys at just 4% inflation.
You will need to inflate your goal amount to ensure you have sufficient resources to realise all goals as prices will not remain the same. You won't be able to afford the same lifestyle with the same income for the next 10 or 20 years.
Rs 1 lakh assumed as current goal value. Multiply your current goal value to arrive at your final figure. Goal figures in rupees.
One-time investment will depend on return expectations
To reach a future goal, it is prudent to assume a historical rate of return.
Don't go overboard with return expectations. Work with a realistic figure. It is better to be conservative while assuming future rate of returns.
Calculated for a future goal value of Rs 1 lakh; multiply your future goal value (ie adjusted for inflation) to arrive at your final figure. All investment figures in rupees.
Also Read: Smart money moves before retirement
SIP amount will also vary according to expected returns
Increasing the SIP amount each year will help reach goal value faster.
SIPs are considered the most convenient and efficient way to invest in the equity markets. If you are investing a modest amount regularly, fix a time frame to achieve your goals.
Calculated for a future goal value of Rs 1 lakh; multiply your future goal value (ie adjusted for inflation) to arrive at your final figure. All SIP figures in rupees.
Falling vs rising inflation
• Investors need to treat periods of falling and rising inflation (and returns) differently.
• SIP investors will need to save more in a falling returns scenario to reach goals.
• An SIP of Rs 2,551 a month can create a corpus of Rs 1 cr in 30 years in a rising return scenario (assumed return of 10% in first 10 yrs, 12% in next 10 yrs and 14% in last 10 yrs).
• SIP of Rs 3,145 a month is needed to create the same corpus in a falling return scenario (assumed return of 14% in first 10 yrs, 12% in next 10 yrs and 10% in last 10 yrs).
• This is because the accumulated corpus will generate less returns in later years.