Bizz Buzz explainer: How to make Rs 1 crore by saving just Rs 300 a day
To build a substantial corpus and to think about retirement requires consistent savings and relatively robust risk-free returns.
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Hyderabad: To build a substantial corpus and to think about retirement requires consistent savings and relatively robust risk-free returns. The ultimate aim of earning and having all this struggle is to have enough savings to lead a happy retired life.
Saving your first crore will need tough discipline and returns that require investment instruments that deliver substantially more than your typical fixed deposit. Equity mutual funds on average are known to deliver 12 per cent consistently over a longer time horizon. For salaried class or even business class savers, systematic investment plans (SIPs) in equity mutual funds are ideal as they provide the benefit of dollar-cost averaging by spreading the risk over a longer period. This reduces the impact of volatility, which equity markets are known for owing to their bear and bull cycles.
Road to Crorepati
For someone starting at the age of 30 years, saving Rs 300 per day and investing the same at the end of the month in an equity mutual fund SIP is most likely way to deliver the first Rs 1 crore in about 21 years. Before you hesitate, do consider that Rs 250 per day amounts to an investment of just Rs 7,500 per month. Assuming a return of 12 per cent, it will take about 21 years to reach this goal.
However, you can reduce this time frame by 5 years by increasing your monthly SIP by 15 per cent every year to accumulate the same Rs 1 crore. At 12 per cent annual rate of return and 15 per cent annual step-up in SPI which starts at Rs 7,500 per month in the first year, it will take you 16 years to accumulate Rs 1 crore. For example, this amount will be Rs 7,500 in 2021, Rs 7,500+15% in 2022 and so on. The step-up method is more suited as it takes into account increasing annual income over time and therefore saving potential.
Start investing
For someone who starts investing at the age of 30, it is possible to accumulate Rs 1 crore by the age of 46 using the latter method. This gives you at least 14 years more until retirement to further increase this corpus. Building wealth through investing is all about starting early in order to make full use of compounding. While there are plenty of mutual funds in the market, blue-chip index funds and ETFs are historically known to outperform most active funds over a longer period. It is extremely important to do your research before making investment decisions.
