The scenario can be presented in two forms-
a.) Amount of investment required per month for reaching the same corpus by a certain age.
b.) Amount of corpus one gets when one invests a particular sum up to a particular age
Table as per scenario (a.)
|
Scenario 1- Person X |
Scenario 2- Person Y |
| Starting age (years) |
25 |
35 |
| Retirement Age (years) |
60 |
60 |
| Years to Retirement (years) |
35 |
25 |
|---|
| Corpus Required (Rupees) |
1,00,00,000.00 |
1,00,00,000.00 |
| Expected Return (Percent) |
8% |
8% |
| Monthly Contribution (Rupees) |
4,331 |
10,445 |
Table as per scenario (b.)
|
Scenario 1- Person X |
Scenario 2- Person Y |
| Starting age (years) |
25 |
35 |
| Retirement Age (years) |
60 |
60 |
| Years to Retirement (years) |
35 |
25 |
|---|
| Monthly Contribution (Rupees) |
5,000 |
5,000 |
| Expected Return (Percent) |
8% |
8% |
| Corpus Built up (Rupees) |
1,15,45,875.00 |
47,86,833.00 |
From both the scenario, it may be observed that if you start early, (all other conditions remaining constant),
a.) the amount to be invested per month for reaching same corpus is higher for Y since he has started late by 10 years than X.
b.) With the same amount of monthly contribution, the total corpus created by Y is approx. 40% of what X created. Alternately, for reaching the corpus that X has created, Y would need to invest approx. Rs.12,000/- per month i.e. 142% more than what X had invested monthly.
The reason for the same lies in the concept of Compounding.
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