How To Build a ₹10 Crore Corpus in 20 Years or Less? | Detailed Financial Plan | How to Build Wealth

[Music] in a lot of ways optimism influences ambition and with the stock markets almost doubling in the last 14 months it was only a matter of time we started receiving questions such as this dear team i have been investing in fixed deposits lic policies and in a ppf account for many years and it's only recently that i've started investing in mutual funds i am 40 years old now and hope to have a corpus of 10 crores by the time i retire at the age of 60. please let me know how best should i go about this process well firstly thank you for this question it's certainly not an easy one but the good part is a there is clearly a target that's 10 crores and b there is also a timeline that is 60 minus 40 so that's 20 years to get there and finally there are some prior investments in traditional products like ft's endowment policies and ppf which can be quite useful in our planning so in this video we shall help this person with multiple options some possible some impossible but the idea behind offering multiple parts to this 10 crore journey is to ignite the possibility that there may be one good path that he or she might be ready to explore with that being said let's begin a number like 10 crores might feel a little daunting at first but much like any plan a financial target often comes down to three things one the initial investment or starting capital two the annual returns and thirdly the duration which in our case is 20 years so one way of looking at this 10 crore target is to figure out the initial capital one needs and the annual returns one needs to achieve over the next 20 years for example if you have 10 lakhs of investable surplus then an annual return of 26 for the next 20 years will take you to 10 crores and that's it it's as simple a math as one can do 10 lakhs multiplied by 1 plus 26 so 10 lakhs multiplied by 1.26 raised to the power 20 gets you 10 crores and if you have a higher initial capital which i think our 40 year old investor will have then it's even better for example say you have 25 lakhs as your starting investment then a 20.3 percent annual return over 20 years actually gets you to your 10 crore target and it's that simple i'm pretty sure what you're thinking you're saying how on earth is anyone going to achieve a 20 or a 25 percent annual return every year for the next 20 years that's next to impossible well it is difficult and mostly impossible but if history is our guide we found not one not two not three but 19 schemes 19 indian funds which had achieved a cagr of over 20 in the last 19 years and these are regular plans had these been direct then probably there is an additional 1 to 1.5 percent left in the returns however i am going to take the conservative side on this one and would not want to depend on something i have no control of which is the annual returns but the one thing we do have control of is the initial capital and that can be a good starting point now most of us don't have 10 lakhs or 25 lakhs just lying around so let's reframe this problem a little differently what i mean is what if the question was more on what financial instruments are you currently investing in or have access to which offers you a return that is lower than what you need now remember a 40 year old investor like many others has investments in fixed deposits ppf and life insurance policies all of which are probably delivering between five to seven percent returns further and we are just making some assumptions here if this person had started a ppf account when he or she first started working and was maxing out the contributions then the last 15 years the ppf account balance would be very close to 30 lakh rupees and since one can withdraw from the ppf account after a 15-year lock-in these 30 lakhs can be put to better use in achieving our 10 crore goal by moving this amount to an elss fund which is likely to give better returns over the next 20 years in addition to atc tax benefits in addition to ppf another source of your starting capital can be the annual bonus that most salaried employees receive once a year this bonus is on an average about 12 to 15 percent of the ctc and depending on your salary can be a few thousand rupees to a few lakhs but irrespective it should not be ignored because every bit counts other than this there might be a fixed deposit or two that you might want to break or you can get a little innovative by taking a one-time zero interest loan from your parents which can be quite the discussion but it's still worth a shot the point is look at what you have and let's ensure that one can dedicate some lump sum amount for the next 20 years which can in turn accumulate to the entire 10 crores or at least a big part of it to build a nine figure wealth corpus needs discipline and perhaps the most effective way of doing that is via the sip route an sip or systematic investment plan is a technique that requires investors to contribute a fixed amount of money at a predefined interval now there are some pretty interesting sip related thumb rules that can serve our purpose but one thumb rule that often comes up in many discussions is what is known as the 15-15-15 rule so what this rule says is that if you start a monthly sip of 15 000 rupees you continue this sip for 15 years and if the mutual fund or the asset achieves an annualized return of 15 then that will get you a corpus of one crew at the end of these 15 years so 15 000 rupees a month for the next 15 years at 15 returns gets you one crore but where this 15 15 15 rule becomes even more interesting is when we convert it into a 15 15 30 rule which means 15 000 rupees at 15 percent but in this case we extend the time to 30 years and by doing this we allow the magic of compounding to take over and what would have been one crore per the 15 15 15 rule now becomes a corpus of 10 crores by using the 15 15 30 rule so if you are in your 20s or 30s then do explore giving yourself a longer runway to achieve all your financial goals and never underestimate the importance of disciplined investing using the sip approach now let's get back to the problem at hand after all we don't have 30 years we have only 20 years and secondly we can't pin our hopes on equities delivering an annualized return of 15 or 20 or 25 a good practice in this case will be to examine a range of possibilities based on different time periods and annual returns which can then help us determine the right sip amount we need to contribute every month for instance if we keep more conservative estimate of 12 on equities over 20 years the average investor would need to keep aside precisely one lakh rupees every month to achieve the target of 10 crores similarly a more conservative investor banking on a 9 yearly return would need to apportion close to 1.5 lakhs every month to reach the 10 crore goal in fact if you want to play around with these scenarios then simply head to etmoney.com and access our sip calculator whose link has been provided in the description of this video and if you're finding this presentation useful then don't forget to subscribe to the et money youtube channel and share this video with your friends now in a more practical sense investments in sips are almost never static which means most investors tend to increase the number of sips over time this is also called stepping up your sips which in simple language means increasing the amount you invest every month for instance we just figured that to reach 10 crores we can set up a monthly sip of one lakh rupees for the next 20 years at an assumed annual returns of 12 but in case we don't have one lakh to invest the 10 crore target can still be obtained with a number of combinations and under the assumption that the investor can contribute a higher amount towards sips in the future for instance instead of investing a lack of rupees from the first month onwards an investor can start almost halfway at 55 000 rupees and then increase the contributions by 10 every year another way is to start with just 20 000 rupees and increase the yearly contributions by 22 percent which can be quite challenging a few years down the line the fact is there are many combinations that can be explored and every option will have its own set of challenges and perhaps sacrifices that you need to make now in preparation of this video we spoke to a few people in the 30s and 40s just to get an idea on how they themselves are approaching the wealth accumulation and what came out was that a combination of the lumpsum approach and the sip approach makes the task of achieving a high number like 10 crores a lot more doable let's look at this from a numbers perspective for example say we had a starting capital of 10 lakhs now the wealth generated from this 10 lakhs when compounded over 20 years is almost equal to you putting up 10 000 rupees every month for the next 20 years which per our table means that instead of having to pony up a lakh per month a lower sip of 90 000 rupees will also do the same job for us and for the same thread if the initial lumpsum corpus was a bit higher at say 30 lakhs or even 50 lakhs then the monthly sip amount would continue to go down in our view this combination of an initial lump sum plus the use of annual bonuses and the monthly sips can go a long way in helping investors build a multi-crore wealth portfolio and since most calculators don't have a mix and match approach we went ahead and created a simple downloadable calculator in excel whose link is attached in the description of this video so do download the excel sheet and play around with the options i'm pretty sure you'll find it very interesting when approaching long-term wealth building many investors tend to miss out or even ignore some important elements the first consideration relates to the instruments that one should be investing in since our 40 year old investor has a very tight 20-year runway the choice of assets and the funds will be more geared towards carving an aggressive portfolio of at least 80 percent of the money going into equities while this would attract a decent level of volatility in the portfolio it is also the most tried and tested approach to achieving 12 or more return on investment and having said this it's also important to keep this portfolio away from speculative asset classes like bitcoins which have shown periods of spectacular gains and agonizing losses the second element we need to consider in our planning process is the fact that as your corpus comes closer to your 10 crore goal it will be prudent of you to shift a large part of this corpus from equities to fixed income instruments if we go back to our example we had taken a 12 percent yearly return throughout our simulations but a better way of making this plan would have been to aim for say 13 for the first 17 years and then temper down the expected returns in the last three years to a much lower seven or eight percent and while we didn't use this 13 7 splitting in this video the calculator we have provided in the description does give you this provision of inputting a different expected return for the first 17 years and then a different return for the next three years the third major element that one needs to be very of is that we have not factored in inflation or taxes anywhere in these simulations and the reason for not having that in this video was to keep the planning process as simple as possible however if you're keen on incorporating those then remember the long term capital gain is 10 and for inflation you can use six percent and with this we come to the end of this video the entire idea behind creating this video was to focus on the planning process and we did that by using 10 crores as a proxy if you enjoyed this presentation then do tap onto that like button subscribe to the et money youtube channel and share this video with your friends and family members thank you for your time and i look forward to catching up with you next week with another insightful video until then mutual fund investments are subject to market risks read all scheme related documents carefully

Channel: ET Money

Views: 741,617

Keywords: mutual funds, fixed deposit, stock market, mutual funds india, best mutual funds, Best Retirement funds, How to build retirement corpus, How to invest for retirement, How To Create Retirement Plan, retirement planning, Retirement Calculator, retirement planning india, retirement corpus, money, personal finance, investing, video, retirement strategies, early retirement, financial independence, financial freedom, share market basics, share market, etmoney, etmoney app

Id: JSCYwjcd0W0

Length: 14min 12sec (852 seconds)

Published: Tue Jul 27 2021