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Easy ways to become a crorepati
Philip Mathew
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May 03, 2007

There are very few people amongst us who don't want to become a crorepati.

Actually, this is not an impossible dream. All you need to is create a good financial plan and follow through on that plan systematically.

In the first part of this article, Practical ways to become a crorepati, we talked of how someone who did not want to take a risk with his money could become a crorepati.

The final part of this article is meant for those who are average risk takers or agressive investors.

2. Average risk

For average risk investors, my advice is to invest a few thousand rupees per month, through SIP, in equity diversified mutual funds.

In Plan 2 mentioned below, I have made an investment of Rs 3,000 per month. According to Plan 2, you can be a crorepati in 16 years. You can either invest in equity diversified mutual funds or equity tax saving mutual funds according to your need.

Assumption

~ In the long term (5+ years return), mutual funds returns would be almost on the same lines as that in the past. Investing in mutual funds through SIP would yield an annualised return of 30 per cent in the long term.

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

Advantages

~ Even though equities are high-risk investments, we can negate the risk to a great extend by investing in a mutual fund through the SIP route. If you are opting to invest in a mutual fund through SIP for at least 5-7 years, the chances that you lose your capital investment is extremely negligible (statistics say that it's even less than 0.5 per cent).

~ Higher growth prospect.

Disadvantage

a) Higher risk than Plan 1.

Plan 2 (Invest fixed sum of Rs 3,000 per month in tax saver mutual funds / equity diversified mutual fund)

Number of years

Year

Age

Beginning of year investment (Rs)

End of year interest (Rs)

End of year total (Rs)

1

2007

25

36,000

10,800

46,800

2

2008

26

36,000

24,840

107,640

3

2009

27

36,000

43,092

186,732

4

2010

28

36,000

66,820

289,552

5

2011

29

36,000

97,665

423,217

6

2012

30

36,000

137,765

596,982

7

2013

31

36,000

189,895

822,877

8

2014

32

36,000

257,663

1,116,540

9

2015

33

36,000

345,762

1,498,302

10

2016

34

36,000

460,291

1,994,592

11

2017

35

36,000

609,178

2,639,770

12

2018

36

36,000

802,731

3,478,501

13

2019

37

36,000

1,054,350

4,568,852

14

2020

38

36,000

1,381,455

5,986,307

15

2021

39

36,000

1,806,692

7,828,999

16

2022

40

36,000

2,359,500

10,224,499

Aggressive investor

For aggressive investors my advice is to invest as much possible in equity tax saving mutual funds/ equity diversified mutual funds through the SIP route. In Plan 3 mentioned below, I have taken an investment of Rs 7,000 per month.

As we invest Rs 84,000 per year (Rs 7,000*12) we also save Rs 25,200 in taxes (assuming you are in 30 per cent income tax bracket). Every year, increase your investment by 10 per cent. According to Plan 3 you can be a crorepati in just 12 years.

Assumptions

~ In long term (5 + years return) mutual fund returns would be almost on the same lines as that in the past. Investing in mutual funds through SIP would yield an annualised return of 30 per cent in the long term.

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

Advantages

~ Even though equities are high-risk investments, we can negate the risk a great extend by investing in mutual funds through the SIP route. If you are opting to invest in a mutual fund through the SIP for at least 5-7 years, the chances that you lose your capital investment is extremely negligible (statistics say that it's even less than 0.5 per cent).

~ Higher growth prospect.

Disadvantage

~ Higher risk than Plan 2.

Plan 3 (Invest Rs 7,000 per month in rax saver mutual funds/ equity diversified mutual funds and increase the investment 10 per cent annually)

Number of years

Year

Age

Beginning of year investment (Rs)

End of year interest (Rs)

End of year total (Rs)

1

2007

25

84,000

25,200

109,200

2

2008

26

92,400

60,480

262,080

3

2009

27

101,640

109,116

472,836

4

2010

28

111,804

175,392

760,032

5

2011

29

122,984

264,905

1,147,921

6

2012

30

135,283

384,961

1,668,165

7

2013

31

148,811

545,093

2,362,069

8

2014

32

163,692

757,729

3,283,490

9

2015

33

180,061

1,039,066

4,502,617

10

2016

34

198,068

1,410,205

6,110,890

11

2017

35

217,874

1,898,629

8,227,394

12

2018

36

239,662

2,540,117

11,007,173

Those who do not have a financial plan yet can start your investment now itself. You can probably start with any of the financial plan available and customise the plan according to your needs and risk appetite. 

Interesting statistics as on November 10, 2006:

~ The average year-to-date return of tax-saving funds was 25.34 per cent.

~ The one, three and five-year returns of these funds average at 40.9 per cent, 43.29 per cent and 43.77 per cent.

~ Let's say you invested Rs 8,000 every month over the past five years in an ELSS. That would mean an investment of Rs 4,80,000 over 60 months. If you had invested in the one which gave the best return, you would have ended with Rs 23.95 lakh (Rs 2.3 million) at the end of five years. If you had picked the worst, you would still have ended up with Rs 9,82,000.

Suggestions/ Tips

Happy investing!

Part I: Practical 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 professional financial advisors before investing their money.


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