What investing can you do with just Rs 100? Well, you can become a crorepati, says Vatsal Ramaiya
Illustration: Uttam Ghosh/Rediff.com
What can Rs 100 buy you these days? Perhaps a cup of coffee in a decent coffee shop!
Isn't this unbelievable?
You are wrong if your answer is yes!
Here's how you can create real wealth by investing for the long term and allowing the power of compounding work magic for you.
Study this table carefully:
You may call this table simplistic but the above calculations are probable provided you answer positively to the first two questions posed below:
1. Can you afford saving Rs 3,000 per month?
2. Can you invest Rs 3,000 per month for 30 long years?
And I will not blame you if you were to disbelieve that you can ever earn a 12 per cent return compounded annually for 30 years.
Let me begin with the first question…
Ask yourself, can I afford saving Rs 3,000 per month?
I am assuming that minimum average of monthly salaries of most of the readers of this article would be Rs 20,000.
If that be true then Rs 3,000 is just 12.5 per cent of this average salary, and so not difficult to save.
Ask yourself, can I invest for 30 years?
Time is your best friend while investing; the more time you spend in an investment the better the returns that investment will generate.
Let's talk more about the example above: your investment of Rs 3,000 per month would mean Rs 36,000 per year and for 30 years you would have invested Rs 36,000 * 30 = Rs 10.80 lakh.
This would have grown to Rs 1.05 crore, a growth of 10 times your original investment done in a staggered manner.
This is the power of compounding!
So, now let us tackle the elephant in the room: Where will I get 12 per cent compounded annual return?
Definitely not in bank FDs; such returns could come only from equity mutual funds or real estate.
I would rule out real estate as you may not get even a square foot of space for Rs 3,000 that you have to invest every month.
The only option you are now left with is equity mutual funds which invest your money in the stock markets, government bonds and other instruments that offer growth along with some safety to minimise your investment risks.
And here's the proof:
For reaching the Rs 1 crore mark by investing Rs 3,000 every month for 30 years we had assumed a compounded annual rate of 12 per cent (much lower than the historical return given by the Sensex as shown above).
Remember, tasks look impossible till they are attempted and done. This strategy would help you save for your new-born, for retirement and any major financial goal.
Vatsal Ramaiya is a personal finance expert with 10 years' experience in managing portfolios of clients. He can be reached at firstname.lastname@example.org for any further questions