If you do not have much experience in the stock market, then SIP i.e. Systematic Investment Plan is a great way to invest in mutual funds. When you invest in a mutual fund through SIP, the fund manager invests your i.e. investors' money in the stock market. They have a good understanding of the mathematics of the market. Therefore, investors usually get better returns on SIP than fixed deposits (FD) and other savings schemes.

SIP also offers the benefit of compounding. If you want to gradually raise a good fund for your retirement, then SIP is a great way. Now let's know what is its 40x20x50 formula.

What is the 40x20x50 formula?

Using this formula, you can deposit an amount of Rs 5 crore by your retirement. Then you will not need to take any tension financially. And this is the biggest worry in retirement because then we are not earning. In this 40x20x50 formula, 40 is your age, 20 years is the investment period, and 50 thousand rupees per month is SIP. That is, let's assume that your age is 40 years, then you have to start a SIP of Rs 50,000 every month from now. By doing this continuously for about 20 years, you will accumulate about 5 crore rupees by your retirement.

This is how a fund of 5 crores will be created with the 40x20x50 formula.

Now let us explain to you how a fund of 5 crores will be created by retirement with this 40x20x50 formula. If you start doing a SIP of Rs 50,000 every month from the age of 40, then in this way you will invest 6 lakh rupees in a year. By doing an SIP of Rs 50,000 every month for the next 20 years, you will invest a total of Rs 1.20 crore i.e. 1 crore 20 lakhs.

Now assume that you will get compound interest at the rate of about 12 percent on this. So in this sense, you will get about Rs 3,79,57,396 as interest on your invested amount at the rate of 12%.

Now add the interest amount of Rs 3,79,57,396 to the amount invested in 20 years, which is Rs 1.20 crore. By adding these two, a huge amount of Rs 4,99,57,396 is prepared. In this way, you can spend your retirement happily by raising a big fund for your retirement by using this formula.

Keep these things in mind.

Keep in mind that the return on SIP can be more than 12 percent or even less. Generally, good funds easily give an annual return of 12 percent. Therefore, the fund should be chosen carefully and after looking at its record. If you are facing a problem in selecting the fund, then you can take the help of your financial advisor in this task. Who can suggest the right fund for you after understanding your income and risk properly?