Kaun banega Crorepati is a popular TV show in India. When Bollywood superstar Mr. Amitabh Bachchan asks his audience “Kaun banega Crorepati”? Every Indian wants to raise his/her hand.
In this modern era there are plenty of good investment options which can help us to become Crorepati even with low or medium level earnings.
In India Crorepati is a tagline which Indians use to depict the richness of the individual. Every Indian try hard to get this tag. We think we can be Crorepati when our salaries or income level increases. But it is not true. It’s a Myth.
Wealth creation does not depend only on the income you earn but it mainly depends upon Your Attitude. Your sincerity, patience, and perseverance towards achieving Financial Freedom make the difference.
Here I will discuss a Real Case with you all.
One of my clients who is earning average salary (as most Indians do) wants to accumulate 1 Cr. I showed him the path, and I am quite sure if he sticks to it for longer term he can be a Crorepati,
Let’s name my client as Mr. X. He is earning Rs.30k and wants to accumulate 1 Cr in 15 years.
My response to him :
Let’s point out your requirements and your target.
You want to accumulate 1 CR
Time for accumulation is 15 years.
Monthly Investment Rs 12000 (doable with savings rate 40%)
Expected Rate of return per year ???
Let’s see the calculations
As per the table, for accumulating 1 CR in 15 years time the rate of return should be 17.5% every year. In reality, this is may not be impossible. SIP made in a good quality multi-cap fund can generate returns ranging from 10 to 15% in long term. But considering ups and downs in equity market it is always prudent to be realistic and reasonable. SIP investments’ rate of return should be considered at 10% p.a. for safer side.
But if we consider 10% rate of return from Equity mutual fund, then monthly investment required is Rs 24000 almost 80% of your monthly income which is unrealistic. Here you can take help of Step Up SIP where a fixed percentage of increased done every year to accumulate the targeted amount.
You need to save Rs 14000 rs per month (saving rate required 47%) and keep on increasing this at the rate of 10% for 15 years to achieve 1 Cr corpus.
- You may find it difficult to save nearly 50% of your salary initially. But slowly you can achieve this rate. Kindly refer this blog . It will help you to increase your savings.
Not able to save sufficiently: Useful tips to increase your savings
Where to Invest for this? Of course in Equity. You have 2 ways to invest in Equity Asset Class.
- Direct Equity: Indian stock market has a huge potential. Indian companies are growing steadily. Many sectors are flourishing and expanding their businesses. Blue-chips are all time favorite. Stocks like TCS, Reliance, Infosys, and Mahindra will give a handsome return for the future.
- Mutual fund: Those who don’t understand direct equity, mutual funds are the best vehicle to enter into the stock market through it. SIP is the best option where you save small amount every moth. It gives you benefit of rupee cost averaging. While investing in equity one mutual fund should consider building the portfolio under Core and Satellite approach. In this pattern, more proportion of money is invested in Large and Midcap fund. The large-cap can generate 10 to 12% returns for SIP investments. These funds provide stability and minimize the downside risk of the market. The smaller portion is invested in good quality in Mid and Small Cap as satellite portfolio which has the potential to generate 15 to 18% returns. This can add a kick in overall portfolio returns.
My suggestion invest in Direct Equity and equity Mutual Fund in the ratio of 20:80
Wealth creation is a long term phenomenon. Stick to your asset allocation for the long term. Don’t get panic about the short term volatility in equity markets. Stick to our SIP. You will definitely be benefited.
Hope this live case study answers to the very famous question
Kaun banega Crorepati !!!