TEN CRORES IN 20 YEARS

Dear Investor,
During my interactions with investors in last couple of years, every investor has asked me a simple & basic question: what’s that magical number which is sufficient for his/her financial freedom? The answer is, believe it or not, Rs 10 crores!!!

A corpus of Rs 10 crores might sound too much to you. However, if your family’s monthly expense today is 60k to 75k, you will need Rs 2 lakhs to Rs 2.50 lakhs per month for same standard of living after 20 years (assuming inflation of 6% p.a.). Hence, your annual expense will be between Rs 24 lakhs to Rs 30 lakhs. Bank FD interest rates have fallen to half in last 20 years. They are expected to fall further to half, i.e. from current level of 6% p.a. to 3% p.a. After 20 years, if you invest Rs 10 crores in a Bank FD at 3% p.a., you should receive Rs 30 lakhs p.a.

The next obvious question is that how does one reach this magical number. This target can be achieved by investing lumpsum amount or SIP every month. Let me give you an overview on both the options.

Let’s assume an investor living in Delhi NCR, is in the age group of 30 years to 40 years, wishes to retire after 20 years & his target amount is Rs 10 crores. As per mathematics, if you know your initial investment amount or starting capital & you know your target amount, you can easily calculate that how much annual return you need to generate to reach to your target amount. Please refer table below for better understanding, in which I have assumed initial investment of 10 lakhs to 1 crore as starting point:

As per table above, if you invest Rs 10 lakhs today in an investment product which gives you return of 26% p.a., you will have Rs 10 crores after 20 years. Similarly, if you invest Rs 25 lakhs today, you need to generate return of 20% p.a. to create a corpus of Rs 10 crores after 20 years. Now most of you would say that it’s impossible to generate return of 20% p.a. to 25% p.a. on an annual basis over 20 years. You will be surprised that 19 Equity Funds had given return between 20% p.a. to 25% p.a. in last 20 years. I am not claiming that you can expect similar returns in next 20 years, however, equity funds have potential to generate this kind of return despite all the risk & volatility.

Apart from lumpsum investment method, you can also achieve your target through SIPs: systematic investment plan, investing on a monthly basis. If you invest Rs 65,000 per month in an investment product which gives you return of 15% p.a., you will be able to create corpus of Rs 10 crores after 20 years. However, if you can extend your retirement by 5 years, you can achieve your target through SIP

of 30k per month. The other option is to start SIP of 20k per month & increase your SIP amount by 20% every year, you should be able to achieve your target in 20 years (assuming return of 15% p.a.)

As they say: “Well begun is half done “so start investing through SIPs & lumpsum to achieve financial freedom for yourself. However, I suggest you work on it in a more structured & organized way.
Happy Investing!
Gianendra Gupta