How to become a Crorepati ? This is a very simple question with a no specific answer, there is no shortcut of becoming a crorepati . Crorepati’ is a dream that every Indian has. But the critical question is how to do that. There is a long but an easy way out to achieve this goal. Start investing and Start it early. Warren Buffet started investing in stocks at the age of 11 and he became the 2nd most richest person in the world.
If you are now 20 years old , then just by saving 30 Rs a day you will be a crorepati by the age of 60 . You have to save 30 Rs daily and at the end of the month you will have 30 x 30 = 900 Rs . Invest this 900 per month regularly for the next 40 years in any diversified mutual fund through SIP(systematic investment plan ) . Now the power of compounding will work for you.
Let us understand it with an example and a set of assumptions. Assumptions are as follows:
- Mr. X is 20 years old
- He accumulated 30 Rs per day monthly for 40 years
- At the end of every month he invest the daily saving( Rs 900 appx. ) in a diversified mutual fund.
- Mutual fund gives a return of 12.5% p.a.,
- If Mr. X continues this process for 40 years, he will become a crorepati if all the assumptions mentioned hold good.
This opportunity is available to even older people. However, they have to forgo some other consumption though in small quantity only. As a 30 years old person, you need to save Rs. 95 daily. As the age progresses, the savings required increases naturally. So, what do you need to achieve the target of Rs. 1 crore.? Just 30 Rs everyday.
Can it be more faster ?
Now you must be wondering 40 years is a big time period can it be less than that ? Its defiantly going to be less than that, 12% is the average return rate if your mutual fund is good and gives you around 15% then it will take 35 years that is 5 years less. Is it possible to make it less than 35 years ? Yes it is , if you choose the dividend reinvest option in your mutual fund investment.
In dividend reinvest option whatever the divided you earn it gets reinvested, and your investment amount keep on increasing and also the returns. Depending up on the type of mutual fund you can get 2-6% dividend per annum. Dividend purely depends on the type of the mutual fund and the stocks that mutual fund is holding. I did a SIP in Birla Sun life Midcap fund and it has given 4% average dividend in the last five years. I have selected the dividend reinvest option because of which the investment amount is increasing every year without anything going out from my pocket. Because of the dividend reinvest option your investment amount will keep growing and also the returns as money earns money. With this your crorepati target could be achieved in 25- 30 years. And instead diversified mutual fund if you go with small or midcap funds it could be less than 25-30 years. But remember that mid and small cap stocks have more risk. They are high risk high return kind of stocks. Your returns could be faster and better and could also be lesser.
Abhishek is an Engineer MBA in Finance and Certified Research Analyst. He is an active trader and investor in the stock market since 2010. Follower of the philosophies of Warren Buffet and Peter Lynch in investing and trend following in trading.