How to Build a Potential ₹1 Crore Retirement Fund with Mutual Funds? Check Out The Step-by-Step Plan

The calculation of the required monthly SIP depends on your:

• Expected rate of return 

and 

• The investment horizon

Generally, a higher assumed rate of return or a longer investment period can reduce the monthly investment required. Conversely, lower returns or a shorter time horizon may require a higher SIP amount.

For example, the “15-15-15 rule” of retirement planning suggests that investing ₹15,000 per month for 15 years at 15% p.a. may potentially accumulate a corpus of around ₹1 crore. However, if the actual returns are lower than 15% or the investment period is shorter, the required monthly SIP may be higher.

To understand better, let's check out different investment scenarios (calculated using the Goal SIP Calculator offered by SEBI):

Note: Actual returns, whether positive or negative, may differ from the assumed returns used in the illustrations. The examples below are provided for illustrative purposes only and should not be construed as an assurance or guarantee of future performance

A) When You Prefer Investing for About 15 Years

B) When You Prefer Investing for About 20 Years

Firstly, decide your investment horizon and determine how many years remain until retirement. Usually, a longer investment horizon:

• Provides more time for investments to grow through the power of compounding 

and 

• May also reduce the monthly SIP required to work towards the target corpus (as seen in the above calculations).

Once you have identified the required monthly SIP and your approximate investment duration, you may follow these steps:

Step 1: Select Suitable Mutual Funds

Assess your risk tolerance limit and select the “right” mutual fund schemes. The various options available are:

• Equity mutual funds
• Hybrid funds
• Debt funds, or 
• Retirement-oriented mutual fund schemes

As per general industry understanding, investors with a longer time horizon may consider a higher allocation to equity-oriented mutual funds, while those nearing retirement may prefer relatively less volatile investment options. 

Furthermore, instead of relying only on historical or past returns, you may also evaluate additional factors such as investment objective, portfolio quality, return consistency, fund manager experience, and expense ratio.

Step 2: Increase Your SIP Regularly

As income grows over time, you may consider increasing the SIP amount periodically through a “step-up SIP”. For those unaware, a Step-Up SIP allows you to increase your monthly investment at regular intervals, such as annually. 

This approach may potentially reduce the time required to reach the ₹1 crore retirement corpus. Let’s see how through an example:

Example of Step-up SIP

Suppose an investor starts with a monthly SIP of ₹10,000 and earns an assumed return of 12% per annum. By continuing the SIP for 20 years, the investor contributes a total of ₹24 lakh and may accumulate a corpus of approximately around ₹1 crore (illustrative).

Now, assume that the investor opts for an annual Step-Up SIP of ₹1,000. This means the monthly SIP increases from ₹10,000 in the first year to ₹11,000 in the second year, ₹12,000 in the third year, and so on.

In this case,with the same assumed return of 12% per annum, the investor may reach the ₹1 crore milestone in about 17 years, approximately three years earlier than with a fixed SIP.

Step 3: Review + Rebalance Your Portfolio

Retirement planning with mutual funds is an ongoing process rather than a one-time activity. As an investor, you may review the portfolio periodically to ensure it remains aligned with the retirement goal. 

Also, you may prefer rebalancing the asset allocation based on changing financial circumstances, market conditions, and proximity to retirement. Such rebalancing may help you maintain the desired level of risk. 

Step 4: Gradually Reduce Risk Before Retirement

As retirement approaches, you may consider gradually migrating a portion of your portfolio from equity-oriented funds to relatively stable investment options. Such a migration may potentially reduce the impact of short-term market volatility on the retirement corpus just before withdrawals begin.

Step 5: Plan Your Post-Retirement Withdrawals

Building a retirement corpus is only one part of the journey! The next challenge is ensuring that the accumulated wealth lasts throughout retirement. 

To do so, several investors develop their “withdrawal strategy”, following the approach of Systematic Withdrawal Plan (SWP). Under an SWP, a fixed amount is withdrawn from mutual fund investments at regular intervals, such as every month, while the remaining corpus stays invested. 

The potentially “right” withdrawal percentage? It depends on several factors, such as:

• Your age
• Expected expenses
• Life expectancy
• Inflation, and
• The portfolio's potential long-term returns

Note that a lower withdrawal rate may potentially help the corpus last longer, while a higher withdrawal rate could increase the risk of exhausting the corpus comparatively earlier (particularly during prolonged market downturns).

So, now you know what retirement planning with mutual funds is and the various steps you can take to potentially build a retirement corpus of ₹1 crore. If we were to revise, the size of your monthly SIP largely depends on two primary factors: your investment horizon and return expectations. 

A longer investment horizon and higher assumed returns may reduce the monthly SIP, whereas a shorter investment period or lower returns may require a higher monthly SIP to achieve the same goal.

To build a potential ₹1 crore retirement corpus through mutual funds, you may:

• Start investing early to give compounding more time to work.
• Invest through SIPs and increase them periodically with a Step-Up SIP.
• Review and rebalance your portfolio to keep it aligned with your retirement goal.
• Strategically plan your post-retirement withdrawals.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

1. Is ₹1 crore enough for retirement?

While it may be sufficient for some investors, others may require a larger corpus. Whether ₹1 crore is enough depends on your:

• Retirement age
• Expected monthly expenses post-retirement
• Lifestyle
• Inflation, and 
• Healthcare costs

2. Which mutual funds are suitable for retirement planning?

There is no single mutual fund that suits every investor. The right choice depends on your age, investment horizon, and risk appetite. 

As per general industry understanding, investors with a longer time horizon usually consider a higher allocation to equity-oriented funds, while those nearing retirement may gradually shift towards relatively less volatile options.

3. Should I withdraw my entire retirement corpus after retiring?

Many retirees prefer withdrawing money “gradually” instead of redeeming the entire corpus at once. You may potentially prefer a Systematic Withdrawal Plan (SWP), which can provide regular cash flows while allowing the remaining investments to stay invested.