Let's say, after 20 years, someone gives you Rs 1 crore absolutely free. Would that make you happy? Would it help you achieve some of your goals/ dreams? Will it make a difference in your life?

I'm sure the answer to each of these questions would be a resounding YES! Well, you don't have to depend on 'someone' to give you Rs 1 crore for free! You can do it yourself and that too in this lifetime.

The primary aim of this article is to show you how an ordinary person can become a crorepati in her/ his lifetime, provided s/he has a good financial plan and, more importantly, the willingness to implement that plan systematically.

While there are many ways in which you can achieve this goal, I will concentrate only on how to become a crorepati by saving and investing with a long-term perspective.

You might have heard about your company's short-term (1-2 years) as well as long-term (3-5 years) plans. If your company has a short-term plan and a long term-plan, don't you think it's time you have one too?

I will be taking you through three different plans or paths. At the end of the day, you can choose any of the plans mentioned below according to your need or risk appetite or you can probably customise these plans according to your necessity.

Before suggesting the path, I would like to categorise investors into three groups.

~ Low risk: Investors who do not want to invest in equities.
~ Average risk: Investors who would like to invest 10-30 per cent of their income in equities.
~ Aggressive: Investors who would like to invest more than 10-30 per cent of their income in equities.

The paths I have suggested for each type of investor would still be less risky than any direct investment in the stock market or investing a lumpsum in mutual funds.

Low risk investor

For low risk investors, my advice is to invest a few thousand rupees per month in PPF (Public Provident Fund).

• 6 things you must know about PPF 

In Plan 1 mentioned below, I have taken an investment of Rs 3,000 per month or Rs 36,000 per year. According to Plan 1 you can be a crorepati in the next 40 years. You can decrease the number of years by investing more per month or by increasing your investments gradually.

Assumptions

~ PPF will give a consistent return of 8 per cent per annum.

~ Withdrawal will not attract capital gain tax, that is, the tax structure would maintain its status quo.

Advantage

~ Extremely low risk, since the government manages PPF.

Disadvantages

~ Longer tenure.

~ Yielding 8 per cent interest consistently seems to be very unlikely. Low risk investors need to adjust their investment based on the interest rates.

Number of years	Years	Age	Beginning of year investment (Rs)	End of year interest (Rs)	End of year total (Rs)
1	2007	25	36,000	2,880	38,880
2	2008	26	36,000	5,990	80,870
3	2009	27	36,000	9,350	126,220
4	2010	28	36,000	12,978	175,198
5	2011	29	36,000	16,896	228,093
6	2012	30	36,000	21,127	285,221
7	2013	31	36,000	25,698	346,919
8	2014	32	36,000	30,633	413,552
9	2015	33	36,000	35,964	485,516
10	2016	34	36,000	41,721	563,238
11	2017	35	36,000	47,939	647,177
12	2018	36	36,000	54,654	737,831
13	2019	37	36,000	61,906	835,737
14	2020	38	36,000	69,739	941,476
15	2021	39	36,000	78,198	1,055,674
16	2022	40	36,000	87,334	1,179,008
17	2023	41	36,000	97,201	1,312,209
18	2024	42	36,000	107,857	1,456,065
19	2025	43	36,000	119,365	1,611,431
20	2026	44	36,000	131,794	1,779,225
21	2027	45	36,000	145,218	1,960,443
22	2028	46	36,000	159,715	2,156,159
23	2029	47	36,000	175,373	2,367,531
24	2030	48	36,000	192,283	2,595,814
25	2031	49	36,000	210,545	2,842,359
26	2032	50	36,000	230,269	3,108,628
27	2033	51	36,000	251,570	3,396,198
28	2034	52	36,000	274,576	3,706,774
29	2035	53	36,000	299,422	4,042,196
30	2036	54	36,000	326,256	4,404,451
31	2037	55	36,000	355,236	4,795,687
32	2038	56	36,000	386,535	5,218,222
33	2039	57	36,000	420,338	5,674,560
34	2040	58	36,000	456,845	6,167,405
35	2041	59	36,000	496,272	6,699,677
36	2042	60	36,000	538,854	7,274,532
37	2043	61	36,000	584,843	7,895,374
38	2044	62	36,000	634,510	8,565,884
39	2045	63	36,000	688,151	9,290,035
40	2046	64	36,000	746,083	10,072,117

Average risk/ Aggressive investor

My advice investors who fall in these two categories is that they should opt for mutual funds, and specifically opt for the 'Systematic Investment Plan'.

Why SIP?

The numbers speak for themselves. The figures given below explain why a SIP investment is better in the long term.

The returns give below are calculated from Jan 1, 2007, onwards.

Equity Diversified Mutual Funds

1. SBI Global
~ Annualised SIP return over a period of 10 years: 35.84 per cent
~  Non-SIP return (annualised) over the same period: 26.21 per cent

2. Reliance Growth
~ Annualised SIP return over a period of 10 years: 42.00 per cent
~ Non-SIP return (annualised) over the same period: 37.38 per cent

Equity Tax Saving Mutual Funds

1. HDFC Tax Saver
~ Annualised SIP return over a period of 10 years: 49.21 per cent
~ Non-SIP return (annualised) over the same period: 48.64 per cent

2. SBI TaxGain
~ Annualised SIP return over a period of 10 years: 38.59 per cent
~ Non-SIP return (annualised) over the same period: 32.16 per cent

• What's a mutual fund SIP?

3. ICICI TaxPlan
~ Annualised SIP return over a period of seven years: 44.55 per cent
~ Non-SIP return (annualised) over the same period: 24.25 per cent

If you are still not convinced about SIP, check one more statistic given below. The return given below is the 7-year annualised return (April 1, 2000, to April 1, 2007). This was a fund that was hit hard by the technology burst of 1999-2000. 

ICICI Technology Growth
~ Annualised SIP Return over a period of seven years: 32.53 per cent
~ Non-SIP return (annualised) over period: 6.82 per cent

BSE Sensex, on a comparative basis, yielded an annualised return of 18 per cent in the last 20 years. So I assume mutual funds would yield an annualised return of 25 per cent and investing in mutual funds through SIP would yield an annualised return of 30 per cent in the long term.

I know this is a bit optimistic, but if you invest systematically in a fundamentally good mutual fund, your chances to get this sort of return is really on the higher side.

Part II: Easy ways to become a crorepati

Author's disclaimer

The information contained here was gathered from sources deemed reliable; however, no claim is made as to its accuracy or content. The facts and figures given in the article might not be exact or might have errors. It's up to the user to verify these figures for themselves. The author would not be responsible for any error in the article or any misinterpretation of the facts.

Rediff disclaimer

This article is for illustrative purposes only. Readers should take the help of a professional financial advisor before investing their money.