Crorepati (status) is a big deal for us. Here are the steps involved
Step 1 -> Invest 43 thousand per month for 10 years.
Step 2-> After 10 years, you will have 1 crore, if you received 12% CAGR return.
Step 3 and 4 , shows you how to keep earning 40 thousand per month for ever starting 11th year !
The joy of having 1 crore in some liquid asset like shares/gold or bank is way-way amazing than owning an illiquid 1 crore worth asset like home or land plot etc. You cannot use that money for decades.
Having 1 crore is like you become captain America, shouting “ Avengers Assemble”....and 1 crore rupees comes to solve all your bills, loans, Financial commitments as well as gets you that social validation, relatives admiration etc…
That financial calculations we men do before our sleep, 1 crore portfolio just gives you that smile and lets you sleep knowing that, you are ready to face any big financial challenges you can think of !
What can a crore do for you?
Do bank Fixed Deposit. You can immediately start receiving 58 thousand as monthly cash (7% interest on FD). Think of it like a pension forever.
But the problem is… Bank Fixed Deposit is not going to beat inflation.
~ 5 lakh would get you 2 kilo gold in year 2000.
~ 2 decades later, Today
~ That same 2 kilo gold will cost you 1.2 crore.
So Imagine someone did a bank Fixed deposit in year 2000. Today the person has just 30-40 lakhs after 2 decades in Bank fixed Deposit. Did not beat inflation !
Solution is… For long term, investing is better.
Smart well read and research oriented people, Park their 1 crore in Indexes funds alot now.
Historically indexes are safe. Since, they voluntarily kick out under performing stock and always support the top 50 companies, if we talk about Nifty 50 Index from India.
Check the below table. Green color is good. Red is bad. Too many greens is awesome.
The above data and some common sense suggests us that, we can generate more than 10% (10 lakhs) safely from 1 crore after taxes, on a long term basis via share market/Index funds.
Secret monthly cash flow formula.
1 crore will generate some positive returns every year. Assume that you will keep earning a consistent cash flow of 10% every year. And this formulae is for those who are yet to create their 1st crore.
With 1 crore invested, which fetches 10% per annum (assume), the rule allows us to withdraw 5% as the cash flow every year for 100 years.
1 crore gives 5 lakh income every year → 41 thousand a Month
5% of 1 crore is 5 lakhs per annum cash flow. correct?
When you divide it with 12 months, you will get 41 thousand.
Your mobile recharge, electricty bill, gym, saloon, maintenance bill, grocery, eating out, movie ....alot of these recurring expenses gets resolved from this 41 thousand cash flow.
With 1 crore in account, you can spend 41,000 rupees per month for 100 years. And this sum of 41,000 is more than enough for numerous middle-class families in our present India. Right?
How to beat Inflation on 1 crore?
Oh by the way, 10% of 1 crore = 10 lakh every year.
Out of this 10 lakh you get to withdraw 5 lakhs every year, as per rule stated above.
Remaining 5 lakh (10–5 = 5 lakh) goes back into capital and keeps growing capital corpus which will beat inflation in future.
You were thinking what will be the value of 41 thousand after 100 years right?
The residual capital will grow and you can step up the cash withdrawal to match the inflation rates.
Win-win for regular income+ growth+inflation beating !!
Initially…. After withdrawing 5 lakh every year, whatever remains could grow this 1 crore capital. Which beats inflation.
Growth in capital + Monthly income of 41 thousand rupees every month ( 5 lakh per year).
I hope you understood this monthly income + growth plan from sebi Registered expert www.moneydhan.com.
The Tax curse
Nowadays people in India are earning very good salaries. And companies are also offering generous annual packages to their fresh recruiters, even exceeding 20 lakhs per year.
With such significant income….. comes significant taxes.
A person earning 20 lakhs per year may end up paying more than 5 lakhs as income tax.
Cash flow from 1 crore is also 5 lakh only. So did you observe this sir, if you earn 20 lakhs per year salary. 5 lakh per year withdrawal from 1 crore equals 5 Lakh tax to the government !!
To be brutally Honest, 1 crore does nothing if you earn more than 20 lakh per year. Alas before complaining, lets atleast save that 1 crore first. Something is better than nothing.
Math of saving from your salary
At 20 lakh per year salary; 20 lakh x 5 years = 1 crore.
The above maths says, If you Save entire salary for 5 years you will get 1 crore.
irony is… who can save 100% of their salary every year? No one can !!
Practically speaking, choosing a middle ground,
We can try to save at least half of the salary, i.e. 10 lakh per year saved, out of 20 lakh salary income.
In 10 years, with 10 lakh per year savings, you will end up with 1 crore. (10 lakh x 10 years = 1 crore)
Save+Invest → The trick of 5 lakh per year inorder to achieve 1 crore in 10 years.
Till now you understood the following,
Let me add a twist to the tale here.
What if that saved capital is also Invested?? Logical question right?
That 10 lakh saved during 1st year, You do not need it for next 10 years, right? Guess what happens to it in the next 10 years, if this amount gets invested somewhere. Say it is invested in nifty index believe it or not, that 10 should be worth more than 25 lakh alone ! So now a new math comes into play.
Not 10 lakh but, Save just half of that 10 lakhs (5lakh) per year and still achieve 1 crore in 10 years! Bingo.
In nutshell we spoke about, Keeping 10 Lakh saved every year in house vs Investing 5 lakh every year in Nifty Index.
The journey to 1 crore in 10 years seems manageable now. Is it not?
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Alot of us can save 5 lakh per year. Yes?!
That is close to 43 thousand monthly investing. A person who can set aside 43 thousand per month can actually dream of seeing a 1 crore valuation portfolio in 10 years.
We are talking about investing the money. We need to talk about return percentage.
The return will determine how much savings we need to make, so as to reach 1 crore in 10 year.
Remember, if the return percentage is 0, Then you need to save 10 lakh every year for 10 years =1 crore. (fools hardy)
Here the money is kept at home as cash in the locker. Trust me, there are few people who do this exact stuff. You are way smart for that. We take risks. We invest that capital. Risk is almost nil when the investment horizon is way beyond 10 years !
Read the image carefully. It explains, What return should you expect?
When you invest 5 lakh per year, you are hoping to generate a 12% compounded Average return over a 10 years timeline.
5 lakh per year converted into monthly is just 43 thousand per month, need to be invested for 10 years.
Now do remember the rule you read about withdrawal at beginning ;
After accumulating 1 crore in account, a 5% withdrawal on monthly basis will be 41,000 forever. Think of it like a pension plan. This is a Systematic Withdrawal Plan
Pension can keep coming to you for 100 years and after your demise, that amount goes back to your family as a lumpsum. You are their fav grand parent too.
And the most amazing fact is, road to earning a pension for 100 years can be achieved in just 10 years. !!
For 10 years save 43 thousand every month. 11th year you have 1 crore in account.
That money starts paying you 5% (5lakh) payout every year which means, 41 thousand income for 100 years (pension). As well as the capital of 1 crore keep growing with remaining returns.
Check the below image,
Many of our clients who started the Mutual Fund journey back in 2012-2015 time period are now seeing this 1 crore milestone.
We ofcourse just not suggest MF but also we are into equity wealth creation as well as financial planning for worst case scenario preparations or anticipated big expenses in future.
As a rewind, So far you got to know the following
Now you must ask,
“ Saala 12% milega kaise? “
Where to invest this 43 thousand per month?
So let us tackle that question next.
The uncertain dilemma is in selection of assets for investing that must give us a high probability to achieve and return of 12% CAGR.
The word probability is used here because there is no assurance of return anywhere. We are volunteering to take risk exposure and we “hope” to be rewarded with a right return of 12% at the least.
This expectation of 12% means your favorite and reliable Banks fixed deposit is out, it pays just 8% fixed and we need 12%. This 4% extra above 8% comes only with some sort of risk exposure on the capital invested.
So, multiplying 43,000 a month by 12 months gives an investment amount of 5 lakh 16 thousand per year. The amount you must save every year for next 10 years.
Out of this let us choose to invest 1.15 lakh in Nifty index that is 12,500 per month. This is simple and straight forward.
2. Midcap Index Fund (1.83 Lakh / 5.16 Lakh)
Investing in midcap mutual funds can be a strategic move for diversifying your portfolio. These funds target companies with market capitalizations between 10,000 crores and 1 lakh crores, offering a sweet spot between growth potential and risk.
By allocating a portion of your investment, such as 1,83,243 rupees annually or 15,270 rupees monthly, towards midcap mutual funds, you can tap into the growth opportunities presented by these middle-layer companies.
3. SmallCap Index Fund (1.09 Lakh/5.16 Lakh)
Additionally, considering small-cap stocks in your investment strategy can further enhance diversification and potentially amplify returns.
Allocating a portion of your monthly investment, like 1,09,946 rupees annually or 9,162 rupees monthly, towards small caps allows you to capture potential growth in this segment of the market.
4. Nifty 200 Momentum 30 Index Fund (73k / 5.16 Lakh)
The remaining amount of 73,296 rupees can be allocated to highly aggressive assets, specifically the Nifty 200 momentum 30 index, which aims to track the performance of 30 high momentum stocks across large and midcap stocks. 6,108 rupees per month goes towards this highly aggressive momentum index strategy. Thus, we have allocated an entire 5 lakh 16,000 or monthly 43,000.
If our calculations are accurate, then you should reach the target of accumulating 1 crore in 10 years by investing 51 lakhs over a decade and gaining 49 lakhs as profit for the following 10 years, while considering both the capital invested and the profit gained at a compounded annual growth rate (CAGR) of 12%.
So far you got to know the following
By now, you must have realized that: with a deposit of 1 crore in a bank account, you can aim for a monthly income of 40,000 for 100 years.
Alternatively, dedicating 10 years to investing 40,000 per month at a 12% compound interest rate would result in accumulating 1 crore. This initial investment over a decade could yield steady returns over the subsequent 100 years.
Certainly, we have understood the best destinations for allocating this capital. But, considering your age, financial situation, risk profile and other factors, this is not a default advice. It is important to consult a SEBI registered investment adviser for this, someone who will tailor make this as per your risk profile.
If you think MoneyDhan is a good go for this. Hire us as your co-pilot in your financial Journey. We all need someone with whom you can discuss your financial matters, we can be the therapist whom you can talk to openly with no conflict of interest on our part.
But why should you trust us??
At MoneyDhan, we are SEBI registered investment advisors, committed to providing honest and conflict-free financial advice. Our expertise and adherence to legal standards ensure that your financial decisions are well-guided and aligned with your goals.
Now, most of you are salaried who get a consistent cash flow every month. Therefore, aiming for a significant goal such as earning 1 crore in 10 years results in breaking the objective into monthly saving targets..
Hence, determining the required monthly investment involves considering various factors, including the expected rate of return on investments.
In essence, partnering with a trustworthy advisor like MoneyDhan can streamline your financial journey, ensuring that your efforts are optimized towards achieving your goals effectively.
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