Mutual Funds Strategy 108: What if you missed the Boat, were unable to start the SIP when you were…
Last week I met 2 investors in their 40s who were living with the regret that they missed the SIP boat when they were in their 20s. They told me, that investing Rs5000 in their 20s was much easier, their expenses were lower and they had decent savings. Now in their 40s, it is hard to keep up and make a huge corpus of 2 crore+ by age 50 — they have to invest upwards of 90000 per month.
I thought for a moment, and then told them — living with regret is painful and let that not stop you from acting now. Even though I consoled them, I was not able to explain to them mathematically how it all made sense. When I got back to my desk, I did some numbers crunching and finally voila — got the answer.
Let me share it with you here..
Case 1: Suppose a person started an SIP of Rs5000 in their 20s and went on to invest till he is 50 years old, then the numbers work out like this.
- Total Invested amount = 18,00,000
- Gains: 2.03 crores
- Total Fund value = 2.21 crores
- Annual returns assumed = 13%
- 360 months = 30 years.
Seeing a fund value of 2.21 crores are more than enough to plant enough regret into someone in their 40s. It always seems like a missed boat.
Case 2: To achieve a similar returns profile a person in their 40s will have to invest Rs90000 per month to achieve a total fund value of 2.22 crores. The annual returns are assumed to be the same i.e. 13%. The other sad part is that in this case, you end up contributing much more i.e. 1.08 crores and your money has just more than doubled whereas in the first case, your money has gone up by 11.2x.
What used to be just 5000 per month in your 20s is approximately 90000 per month in your 40s. Any rational human being will go into depression seeing these numbers, and the boat they failed to enter in their 20s would leave them with a broken heart.
Let me show a way for you to catch the same boat you missed in your 20s. I promise none of the financial advisors have thought about this idea earlier and I am pleased to introduce this concept afresh to you.
The specific case here is that you are in your 40s now i.e. you missed out on 20 years of SIP investments and you would like to re-enter that boat you missed 2 decades back. For this, we are going to calculate what is the cost of the ticket to re-enter the same boat.
120 months = 10 years.
Case 3: A person invested Rs5000 per month from 20s to 40s i.e. 20 long years at an annual assumed interest rate of 13% — his fund balance would have been 57.28 lakhs.
The final maturity value of 57.28 lakhs is the cost of the ticket that you have to pay now if you wish to re-enter the same boat.
240 months = 20 years.
Case 4: You re-enter the same boat with an initial lump sum of 57.28 lakhs and then just continue with an SIP of 5000 per month.
You will still be able to build a corpus of 2.21 crores at the end of the next 10 years. Maintaining a SIP of 5000 per month would not be a huge trouble as most likely your salary/business income would have grown multifold times than your 20s.
Investing a lumpsum of 57.28 lakhs as a lumpsum would look like a challenge though, but I am here to reassure you that it is the cost of time that you wasted. It all depends on whether you wish to re-enter the same boat again.
For me, the numbers were groundbreaking and it is something that applies to me as well. I started SIPs in the 2007s and went on to invest till 2016, then had a gap of 5 years before I could resume the SIPs (credits to multiple failed entrepreneurial stints). And the easiest way for me to re-enter is to start with an initial deposit now and then go ahead with the original SIP plan.
If you are in your 40s and do not have liquid savings of 57.28 lakhs, then it sadly means you chased the wrong priorities in your 20s and 30s. The second question is, even if you were to deploy 57.28 L now, I would not recommend you to go with 100% equity funds as the markets look extremely over heated, a Balanced Advantage or Multi Asset Funds could be a rational choice instead.
Case 5: I would also like to show you one more scenario, wherein you are investing 50000 per month instead of 5000 as your disposable income is better.
- Initial deposit: 57.28 lakhs
- Annual Assumed Interest rate: 13%
- Monthly SIP = 50000
- Total Fund value = 3.32 crores
I have used the free online SIP calculator https://investmentoronline.com/calculator/systematic-investment-plan-calculator to create these metrics. You are free to try any combinations as per your risk-profile and income band.
The purpose of this article was to re-assure you that, the boat which you missed once could be re-entered by paying for the fares as per the market value. Time has an intrinsic value, which you cannot buy with money — but money can be bought with more money.
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Calculators are for illustrations only and do not represent actual returns.
Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.