Achieving a goal of INR 1 crore in 7 years starting with a monthly saving of INR 15,000 is ambitious. Here’s a breakdown of how this might be achieved, though one must remember that all investments come with risks, and past performance is not indicative of future results.
Understanding the Math First:
Let’s start with the basic future value formula for compound interest:
\[FV = PV (1 + r/n)^{nt}\]
Where:
– \(FV\) = Future Value
– \(PV\) = Present Value or Initial Investment
– \(r\) = Annual interest rate (in decimal form, so 10% becomes 0.10)
– \(n\) = Number of compounding periods per year
– \(t\) = Time in years
Given your saving rate, in one year you’ll have saved INR 1,80,000 (15,000 x 12).
If you were to invest that amount every year for 7 years, the total principal invested by you would be INR 12,60,000.
Now, to reach INR 1 crore in 7 years using this principal, we need to find out the rate of return required.
Working Out the Required Rate of Return:
Using financial calculators or spreadsheet software, and plugging in the above formula with our inputs, the required annual return rate comes out to be approximately 42%. This is a very high rate, and achieving consistent returns at this level is difficult and risky.
Investment Approach:
1. Start with an Emergency Fund: Before investing, set aside three to six months’ worth of expenses in a savings account or a liquid fund. This ensures you have a financial cushion during unforeseen situations.
2. Equity Investments: Historically, equities have delivered higher returns than other asset classes over the long run, especially in India. Mutual funds, particularly equity-oriented funds, might be a good starting point.
3. Diversification: Don’t put all your money into one stock or one type of mutual fund. Diversify across sectors and asset classes to reduce risk.
4. Systematic Investment Plan (SIP): Begin SIPs in a couple of well-performing mutual funds. SIPs average out the buying cost and reduce risks associated with market timing.
5. Reinvestment: Reinvest any dividends or returns you get to benefit from compounding.
6. Regularly Monitor: Investment isn’t a set-and-forget game. Regularly review and if necessary, realign your portfolio based on performance and market conditions.
7. Increase Investments: As your salary grows over the years, increase the amount you’re investing.
Risks and Considerations:
1. Achieving a 42% annual return consistently is highly improbable and risky.
2. Equity markets can be volatile, and there’s a risk of not achieving your desired returns.
3. Ensure you’re comfortable with the risks associated with your investments.
Conclusion:
While the aspiration to amass INR 1 crore by age 30 is commendable, it’s crucial to set realistic expectations based on market realities. Focus on disciplined saving, smart investing, and continuously educating yourself about the financial world. Over time, even if you don’t hit that INR 1 crore mark by 30, you’ll be well on your way to a healthy financial future. Consider seeking advice from a financial planner to get a tailored investment strategy.
