Accumulating a corpus of INR 1 crore usually looks like an unachievable feat for many of us. It is however possible to generate that kind of wealth by investing a monthly amount and following the below discussed rules.
- Make your investments in growth assets
Growth assets are those kinds of assets which come with the potential to provide relatively higher yields in the long term. One such growth asset is equity. In the long term period of 10 or more years, equity comes with the scope of delivering 12 to 15 percent returns annually. As compared to this other kinds of investments, especially in traditional safe assets like fixed income, typically offer an annual return rate of just 7 to 8 percent. You can take the example of the Sensex which has provided annual returns of 10 percent during the past 10 years for long term investments lasting for a period of 10 or more years. It may be noted that the return rate exceeded 15 percent on 5 occasions in the past ten year period.
It may be noted that people can also accumulate INR 1 crore via investments in fixed assets. However, as the returns rate with fixed assets is much lower, investors will need to invest a larger sum on a monthly basis to achieve that goal of INR 1 crore.
People who are apprehensive about investments in stocks or direct equities, or people who do not possess the skills to carry out research about different kinds of stocks, can opt for investments in equity mutual funds. MFs are managed by professional fund managers and their investment portfolio is made up of several different companies which reduce their riskiness.
- Ensure investments are for the long term
As the targeted amount is a big INR 1 crore, you need to invest large sums on a monthly basis for a period of 5 to 10 years. If you only have small sums that you can spare for investment every month, then you will need to look at long term investment of 15 to 25 years or more.
If the invested sum and the return rate remains the same, then the total accumulated wealth tends to rise with an increase in the tenure of your monthly investments.
For example, a monthly investment of INR 5000 for a period of ten years in assets that offer 15 percent returns will help investors build a corpus of around INR 14 lakhs. If the investment is continued for another 10 years then the total accumulated wealth will rise significantly to around INR 74 lakhs. This is due to the power of compounding; the longer is the duration of investment, the more do gain in the form of returns which subsequently helps in accumulated increased wealth.
How to save 1 crore in ten years?
Investing in equity mutual funds is the best option for people who want to create a corpus of INR 1 crore with an investment horizon of ten years. The correct portfolio suited for you will be dependent on your risk profile, age, income, and other factors.
A great option is investment in SIP portfolios. Investors will need to investment a sum of around INR 43,500 every month via SIP or systematic investment plan in mutual funds over a period of ten years to accumulate the targeted wealth of INR 1 crore. This calculation is based on an assumed annual return rate of 12 percent. Investors who cannot increase the tenure of investment from 10 years may have to raise their monthly SIPs as they will need to move their MF investments to safer fixed income securities before actually reaching the targeted amount. Moving investment to safer avenues is a recommended for all when their investments are near their maturity.
Investing in mutual funds via SIP is a simple, easy, and convenient process. Even though MFs are professionally managed, investors need to remember that one just cannot just invest and forget about their SIPs. It is important for investors to regularly check the performance of the MF portfolios, compare it with its benchmark and other categories, and track its progress, etc. Monitoring the fund will help you determine whether or not to move out the investment from a fund that is continuously lagging and underperforming to another that has offered better yields over the past years.
Financial discipline, monthly SIP investments, long term investment outlook, and other factors as mentioned above can help you successfully save INR 1 crore in ten years if you have the capacity to invest around INR 45,000 every month in equity MF with annual return rate of 12 percent or more.