Even though converting monthly savings of few thousand rupees into one crore rupees looks like a difficult task, starting early and having the right approach make it doable. If you want to know how to become crorepati overnight, I have no solution for your problem. If you have some time frame, then it is achievable by investing your monthly savings.
First, I will explain few concepts you need to know to start investing for any kind of goal. The following 3 rules can be applied to any kind of goal that you want to achieve.
If you follow some simple rules, then ten thousand rupees a month can become crores.
The main ingredients are:
- Time
- Choosing investment vehicles
- Diversification
Time: To get enough time, Start Now! We do often hear this advice from our seniors: start saving some portion of your earning. But we take it easy. But the main ingredient to achieve your goal to earn 1 crore rupees, you strictly need to follow this rule. I will explain to you why?
Have you heard about ‘Power of Compounding’? Yes. It’s really powerful than you can imagine. The great Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”
Let’s take an example to understand this.
Ex: A person whose who is 25 years old start investing Rs.5000 in a mutual fund (SIP Mode) and the expected returns are 12%. He keeps investing until his retirement age of 60. Then his final corpus would be Rs.2.9 crore. If he starts investing after 5 years i.e., from the age of 30, his investment of Rs.5000 at the rate 12% return will be Rs.1.62 crore. The person who invests from 25 years old has invested a total Rs.21 Lakhs. Whereas the person who started investing from age 30 has invested Rs.18 Lakhs. The difference between the two is just Rs.3 Lakhs but the final returns difference 1.28 crore.
So, take it as a very serious issue and start investing from this month itself. Start with at least Rs.1000. You will definitely see the difference between you and your friends.
Investment Vehicle: The path you choose to invest in is the most important factor. It decides your returns percentage. So, now let see what are returns given by each asset class to decide your investment vehicle to reach your financial goals.
PPF (Public Provident Fund) returns range between 7 to 8%
Real Estate returns are about 8 to 10% historically
Bank Deposits returns range between 6 to 7%
Gold historical returns are about 12%.
You should note that gold returns are very tough to estimate. 5-year returns are 1.2%, whereas 10-year CAGR is 10.7%. So, if you are going to invest for 5 years in gold, you gain nothing. Inflation will eat out the real returns. This is also very true for real estate investments.
If you consider investing in Equities (stocks), you could expect an 11 – 14% return. This is the best asset class anyone can invest. But equities are the risky asset class and you should not invest your complete savings in equities. Invest 60% of the portfolio in equities is a good way to start. If your financial goal is far distant from now, about 20 years and above, you could invest your most of your savings in equities. It is the best investment option available if you could bear the risk associated with it.
As I said equities are the risky assets, you could diversify your investments to reduce the risk.
Diversification:
The most basic and effective concept to reduce risk is Diversification. Diversification is the process of investing your savings in various asset classes with varying degrees of risk.
There are several ways to diversify your portfolio. Spread your portfolio among many different investment vehicles – stocks, bonds, mutual funds, fixed income plans. Look for assets like stocks and gold, whose returns haven’t historically moved in the same direction and to the same degree. If we observe the historical gold price moment, gold prices increase when the stock market is stagnant or in the bear phase. Otherwise, gold price doesn’t move a bit. Check yourself and correct me if I am wrong.
My advice is to put more weight on stocks, which is best asset class to really beat the inflation. Generally, the inflation rate is around 6 – 7%. If the investments that you make returns just 7%, what you are gaining of it. NOTHING.
Only saving grace in this scenario is an investment in Equities via direct investment in Stocks or via Mutual Funds. Also, don’t forget to diversify your portfolio. Invest in fixed income bonds for the near term goals and invest in equities for Longer term goals.
So, Diversification ensures that, if part of your portfolio is declining, the rest may still be growing.
How to Become Crorepati:
Now coming to the main topic of this post, How to become Crorepati. To quickly earn 1 crore in near future, you need to invest all your savings in equities. There are 2 ways to invest in equities. One is direct stock buying and another is mutual fund path. I do not encourage anyone to invest in stocks without having proper knowledge. Equities can make or break your portfolio.
I consider you as a newbie to investing. If you seriously want to invest directly in stocks, take the help of stock investments & advisory firms like alphainvesco.com, prudentequity.com, drvijaymalik.com. These guys really know the stuff. They have the consistent track record and I have used their services to build my portfolio. They charge an annual fee ranging from Rs.12500 to 25000. If you have investable capital of at least 5 lakh rupees, their services are useful. If you don’t have that much, don’t even think about these advisory services. By the way, I am not paid to recommend these sites to you.
The Mutual Funds provide a facility of diversification along with professional management of money invested by you. Mutual funds are available for any kind of investors. For example, Multi-cap funds cover the Large cap, mid cap and small cap stocks. This way risk is very less compare to pure small-cap fund. Balanced funds invest in part of your money in bond funds and equity funds. Balanced funds diversify across debt and equity assets. Overall, Mutual funds provide easy diversification.
Now, let’s see how different options provide what kind of returns.
How to make 1 crore in 10 years:
Lump Sum Investment:
Direct Stock Market Investment: Investing in stocks recommended by the stock advisory services that I have advised above has resulted in a return of above 26%. These sites have not gone the worst phase like 2008 crash. For now, they have provided above 26% returns. If the trend is continued for another 10 years, you could earn 1 crore by investing Rs.10 Lakhs in 10 years.
Mutual Fund Investment: Mutual funds provide around 15% CAGR. If you could follow the valueresearchonline.com mutual fund ratings and invest in 5 star rated funds for next 10 years, you could earn around 15 to 18% CAGR returns. If you are able to identify 18% CAGR returning fund, you need to invest Rs.20 Lakhs to make 1 crore rupees in 10 years. It is not wise to invest the whole amount in one shot. Follow the SIP kind of investment. Split the amount into 12 parts and invest every month on a particular date. This could average the market ups and downs.
Systematic Investment Plan (SIP):
Direct Stock Market Investment: If you have monthly savings and you want to invest in stocks recommended by the stock advisory services, you could expect 20% returns. These stock advisory services provide a range to buy a particular stock. In my experience, there is at least one stock in the buy range every month. So, you need to invest, Rs.27,000 per month in the stocks which are in buy range to earn 1 crore rupees.
Mutual Fund Investment: Mutual funds allow you to invest your monthly savings in SIP mode. You could expect 15% returns on this type investment. You need to invest Rs.36,000 per month in the funds that you choose to invest to make 1 crore rupees in 10 years.
I have given the expected returns to the modest levels. These asset classes can either provide more returns or even less returns if the stock market trades negative for so long time. This is up to you to choose the investment vehicle that suits you. I just provided few simple examples. I cannot give you specific numbers and specific investment vehicle to earn your first 1 crore rupees because I don’t know your financial position. I just provided the tools to build your portfolio on your own.
I hope i have helped you to know How to Become Crorepati. If you need any other details or clarifications, please do comment below. I will try to reply ASAP. Happy Investing…
Disclaimer: The views expressed in this article are just my views and the returns mentioned in this article are taken from my personal experience and few resources available online. This is for educational purpose but not any recommendation to invest in any particular asset or plan. Do your own research before taking your investment decisions. Thank You…