Becoming a crorepati is not an impossible dream. Through disciplined investing and the power of compounded growth, you can create a corpus of your first crore in a few years. Disciplined investing is important not just from the point of view of creating wealth, but also from fulfilling the needs to protect you from inflation and for your sustenance in retirement.
DON’T BE DAUNTED BY LARGE TARGET
It’s easy to be daunted by the idea of owning a crore rupees someday. You may look at your income today along with your expenses and think there is no way to set aside enough money for achieving this target. But that’s where you are mistaken. With systematic investments of a few thousand rupees every month, and given enough time, you can achieve this mammoth target. If you invest Rs 11,000 a month in a mutual fund with a CAGR of 12 per cent, you wll hit your target in 20 years.
WHERE TO INVEST
Some investments are better suited for long-term wealth creation than others. Fixed deposits, for example, keep your money safe but are not tax-efficient and offer only modest returns and so they are not suited for this objective. For long-term wealth creation targets, you must use an instrument-or a combination of instruments that can achieve the target in an optimal time-span while costing you the least money. In this regard, equity mutual fund SIPs and equity investing could be your best options. Over the long term, these have outperformed even small savings schemes such as PPF. As per the Crisil AMFI Equity Fund Performance for June 2017, the equity mutual fund category has a CAGR or 11.56 per cent in the last 10 years, and 17.82 per cent in the last five. The fact that you don’t get taxed for long-term equity investments mean that you can achieve your wealth targets quicker.
Pro tip: When investing in mutual funds for the long term, pick direct plans which have lower expense ratios. This could save you several lakh rupees in the future.
STEP UP YOUR INVESTMENTS
With time, your income will increase. This will allow you to invest higher amounts with each passing year. Let’s say you start investing Rs 5,000 a month today. With every passing year, you increase your contribution by 10 per cent, taking it to Rs 5,500 in the second year, to Rs 11,800 in the 10th, to Rs 30,500 in the 20th. These numbers seem large now. But gradually stepping up investments in sync with your income would help you achieve bigger targets.
LASTLY, WATCH THE INFLATION
While chasing any financial target, it’s important to contextualise it. A crore rupees today is a big amount. However, assuming an inflation rate of about seven per cent every year, the value of the rupee halves after every 10 years or so. So, for example, Rs 1,000 in 2007 is the same as Rs 2,065 in 2017, assuming an average rate of inflation of 7.57 per cent in this period. If the same inflation rate persists, Rs 1 crore in 20 years would be worth less than Rs 25 lakh today. So not only must your investment target be ambitious, it must also be in tune with future money needs.
