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How to become a crorepati with a normal income

InvestmentYogi.com | Updated On: April 05, 2014 17:40 (IST)




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Becoming a crorepati with a normal income is possible, but it depends on three things:
1. The amount invested every month/year
2. Rate of returns
3. Time period the amount stays invested
A disciplined approach towards saving and sensible investing choices will take you to your first crore as long as you allow
compounding to do its magic. If you were to save and invest Rs. 50,000 per year (which is slightly more than Rs. 4,000 per month)
you could become a crorepati in 25 years.
1. Amount invested every month/year
It's intuitive that the more you are able to save and invest today, the larger your reward will be down the road. However, this table
shows that even the smallest addition to your savings each year can make a big difference in reaching your targeted amount.
Amount invested per year
(Rs.)
(assumed rate of returns at
12%)
Total
investment
(Rs.)
Value after 25
years
(Rs.)
10,000 3,00,000 29,41,000
11,000 3,30,00 32,35,000
15,000 4,50,000 44,12,000
25,000 7,50,000 73,53,000
50,000 15,00,000 1,47,00,000
100,000 30,00,000 2,94,00,000

2. Rate of return
The rate of return (the amount you earn on your savings) has a huge impact on the amount of money you'll end up with. Different
investment vehicles have different expected returns. For example, Indian stocks have historically returned more than 15 per cent per
year. Cash, in contrast, has a current return of 8-9 per cent per year. Your goal is to find a rate of return that offers the highest
potential for growth, but at the lowest possible potential for risk of loss. Over time, we have found that the most prudent solution is a
diversified combination of investment assets (stocks, bonds, cash, real estate, and alternative investments).
Assuming that you could invest Rs. 100 at 11 per cent per year, you would have Rs. 1,359 at the end of 25 years. However, if you
were able to invest Rs.100 at 15 per cent per year, you would have Rs. 3,292 after 25 years.
Year 5% (in Rs.) 11% (in Rs.) 15% (in Rs.)
0 100 100 100
5 128 169 201
10 163 284 405
15 208 478 814
20 265 806 1,637
25 339 1,359 3,292
30 432 2,289 6,621
35 552 3,857 13,318
40 704 6,500 26,786
45 899 10,953 53,877
50 1147 18,456 1,08,366

3. Time period the amount stays invested
To illustrate the power of compounding over time, please refer to the tables below. In the first example, Rs. 2,000 was saved and
invested each year from age 19 to 26 (for a total of eight contributions). In the second example, Rs. 2,000 was saved and invested
each year from age 27 to 65 (for a total of 39 contributions). At age 65, the first example ended up withRs. 1,019,161
(vs. Rs. 805,185 in the second example), even though the total amount contributed over the eight-year period was only Rs. 16,000.
The reason? The first example had eight more critical years to invest at the same rate of return at the beginning of the investment
period. That's the power of compounding!
Example 1 Example 2
Age
Annual
investment
(in Rs.)
Year-end
value
(in Rs.)
Annual
investment
(in Rs.)
Year-
end
value
(in Rs.)
19 2,000 2,200 0 0
20 2,000 4,620 0 0
21 2,000 7,282 0 0
22 2,000 10,210 0 0
23 2,000 13,431 0 0
24 2,000 16,974 0 0
25 2,000 20,872 0 0
26 2,000 25,159 0 0
27 0 27,675 2,000 2,200
28 0 30,442 2,000 4,620
29 0 33,487 2,000 7,282
30 0 36,835 2,000 10,210
35 0 59,324 2,000 29,875
40 0 95,541 2,000 61,545
45 0 153,870 2,000 112,550
50 0 247,809 2,000 194,694
55 0 399,100 2,000 326,988
60 0 642,754 2,000 540,049
65 0 1,035,161 2,000 883,185
Minus amount
invested
16,000 78,000
Total 1,019,161 805,185
How much the
amount has
increased by
64 times 10 times







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