Easy ways to become a crorepati

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.

• Why investing in an SIP is important

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.

• Why your SIP is expensive

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

• Don't be greedy
• Don't expect to be a millionaire overnight. Patience pays, so be realistic.
• Don't panic if the market drops, still let the SIPs go on.
• Don't trade for the short-term, unless you have the expertise to do so.
• Buy more mutual funds if there is a 10-15 per cent drop in the market.

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.