Starting small and being regular can mean magic for your savings.
For all but the top one percent of Indians, one crore rupees is a big amount of money. The tag is justified. Most of us are barely able to save a few thousand rupees a months if we try really hard. It seems a little fantastic to imagine that these small savings could add up to Rs.1 crore. However, the fact is that they can. They can do it only if the saver starts early, choose the right kind of investments and just as importantly, avoids the wrong kind of investments. However, the title of this report is a little misleading. What one crore is today, its not going to be ten or twenty years from now. You must have seen old bollywood movies from the sicties or seventies, in which fabulously rich people would be referred to as Crorepati. In Sholay, released in1975, the Sarkar had put a prize of pachchas hajjar( Rs.50,000) on gabbar Singhs head. That sounds like a ridiculously tiny amount of money today. And so it will be in the future. If you think that it would be nice to have rupees One crore when you reire, its more likely that you will need three or four times that amount. However, such sums of money are well within reach if you invest properly. To learn how ,reach the rest of this report.
The high cost of even a small delay Starting early is extremely important. The difference between starting at the age of 25 and the age of 35 can be huge. If you start putting Rs.5, 000 into a scheme that earns 12% returns, in 30 years it would grow to Rs. 1.77 crore. But of course, as time goes by, you will earn more. So you must increase the investment too. If you increase the investment by a modest 10% every year, the corpus will be a huge Rs.4.42 crore. However, a delayed start can cost you heavily. What you save in the first five years of your career will account for almost 22% of your retirement corpus at 60. This is based on the assumption that the amount saved will increase by 10% every year. So, even though you will be saving more in the last years. What you put away in the first few years is critical. Miss these golden years of saving and your corpus will be smaller by the same proportion.
A simple, step-by- step guide to bring your Rs.1 crore dreams to life Pick 3 good funds If you are a first-time investor, go for balanced funds. The stability of their debt portion can save you the stress that you may experience every time the stock market tanks. If you have prior experience of equity investing and also need to save taxes, choose tax-planning as they are properly funds. If, however, tax-saving is not a consideration, you can go for equity multi-cap funds. Create monthly SIP Start investing regularly in your chosen funds. You can put that on auto-pilot by creating monthly.
Why Mutual funds? Different cars suit different drivers. Those driving on country roads prefer the ruggedness of SUVs whilst city dweller prefers the convenience of sedans. The answer is quit the same for investors.certain type of investors are better suited to mutual funds whilst other may do better with stocks. Stock investing requires greater time from the investors and more application of mind then fund investing. Investors with small investible amounts, generally less than 1.5 lakhs a year may not be able to achieve the same level of diversification through stock that fund will give them. For these types of investors, there is no better answer than mutual funds. A mutual fund is financial intermediary, set up with the goal of professionally managing money pooled from a large number of investors. By pooling money together in a mutual fund, investors can enjoy economies of scale. Instead of each investor trying to undertake his or her own investment research, a team of profession can do for them together. Mutual fund are by mutual fund companies,also known as asset Management companies . Each AMC operates a number of funds suited to different types of investment needs. Easy Diversification One of the basics of scale investing is to spread your money across different investments. Mutual funds are easy way to do this. Each mutual fund spreads money across a large number of investments. Choice There are mutual funds available for every kind of return of risk level and suitable for every kind of time horizon. No matter what kind of investment you want , theres likely to be a variety of funds that suit you. Convinence You can easily invest as well as withdraw from mutual fund in any amount.Investments can be made by filling up a simple form or even online with a direct debit from from your bank account. Similarly, redemptions can be made directly to your bank account and take no more than three working days. If you wish to buy enough to have a diversified set, you will need a lot of money to do so. However, through a mutual fund you can invest a diversified set of stock for as little as a few thousand rupees . And what more you can invest more in small batches. Transparent, well regulated industry Mutual funds are obligated by law to release comprehensive data about their operations and investments. All funds release daily and most release their complete portfolio every month. The SEBI regulates the fund industry very tightly and is constantly refining the applicable rules to protect investors better. Providing access to inaccessible assets There are many investments you can conveniently make only through a mutual fund. For example the stock of foreign companies, For most of us, it would be prohibitively complex to open brokerage account and buy shares in different countries. However you can do so easily buy investing in a international Fund. Whats the plan? A simple, step- by- step guide to bring your Rs.1 crore dream to life Pick 3 good funds If you are a first time a investors go for balance funds. The stability of their debt portion can save the stress you may experience every time the stock market tanks. If you have prior experience of equity investing and also need to save taxes choose tax planning funds. If however tax saving is not a consideration, you can go for equity multi cap funds. Why Rs.1 crore It looks like a huge problem you manage to save barely a few thousand rupees every month, and yet when you retire or even before that you will need a crore of rupees to secure your future. Can thousands become crores ? can savings and investments do such magic? Yes, they can. If you follow some simple rules, then ten thousand can become crores.
- The main ingredients are :
- Choosing investment that can deliver real, sustained returns.
To get enough time, start now Young people are often given this simple advice by their elders: start saving some portion of your income. Unfortunately, most of the time these golden words fall on deaf ears. When you are young, its difficult to imagine what life would be 30-35 years later. There is also tremendous peer pressure to own the latest Smartphone, wear fashionable brands and drive the latest cars. Its not surprising then that EMIs become more important than SIPs in the first few years of a persons career.Even so saving is essential if you want to live your later years in comfort and free of financial worries. If a 30-years old spends around Rs.30000 a month on basic inflation expenses even a low 6% inflation will take his monthly expenses to Rs.1.72 lakh by the time he retires at 60 . This rise in the cost of living is imperceptible to many because it happens silently and gradually . It also does not pinch too much because incomes usually rise faster than the 6-7% rise in inflation. But you will start feeling the heat after you stop working and every day becomes a Sunday. Your income will be Sunday. Your income will be stagnant in retirement, but your expenses will keep rising with every passing day. Worse, some expenses such as medical care, which may be a fraction of your current expenses, will account for a bigger chunk of your monthly budget as you grow older. It is estimated that in the later years, healthcare accounts for almost a fifth of a person a total expenses.
You all actually need more There s no way but equity Equity may look risky over short periods, but over ten, twenty or thirty years, its the only way to earn enough for a comfortable future. While regular investments are important, it is equally important to invest in the right type of asset in order to actually reach your financial goals. Its clear from the calculations above that the main enemy you have to fight against is raising prices. Unfortunately, the weapon that most Indian brings to this fight is not adequate. We tend to use fixed income option like PPF for retirement savings. Unfortunately is even very little over and above inflation. In fact, there are many periods when these deposit actually glow slower than the pace at which prices are rising. For example, you deposit Rs.10, 000 in PPF and some years later it has grown Rs.15000. However, by that time, things that used to cost Rs.10, 000 earlier also cost Rs.15000. What have you gained? Well, you are better off than having kept it as cash, or having kept it as cash, or having kept money in a savings bank account. However, you have not gained anything from a retirement perspective, you are poorer! So is there a solution? Fortunately, there is. The solution is equity, that is, stock. The only reason people hesitate before using equity is that they think its very risky. Culturally, Indians appear to like low- risk, fixed income investment options such as PPF and bank deposit. And yet this is not universally true. There is a huge number of Indians who invest in equity and ET high inflation beating return out of them. Over the past 20 years, Rs.1 lakh in PPF would have grown to Rs.6 lakh. The same Invest in the nifty would have grown twice as much to Rs.12 lakh ! In terms of the risk inflation and meeting future expenses a investment in equity tends to reduce them over the long term. A lower return fixed income investment such as the PPF will paradoxically leave you more exposed to this risk over such time period. Why are you missing out on this opportunity? Most likely because you have not found the right guidance for investing in equity mutual funds, and have heard a lot about equity-is risky propaganda .It is time to see through the noise.