Recently while watching television I came across the advertisement of ‘Kaun Banega Crorepati’ (KBC) making a comeback. KBC is one of the most famous shows of Indian television history. The popularity and viewership statistics of this show reveal the aspirations of the common man on the street. All of us aspire to become crorepati’s. Lot of people dream of participating in the show and become crorepatis overnight. But few people have got an opportunity to participate in the show and from those few people also, so far the show has produced only one crorepati. Few people came close to it realising their dream of becoming a crorepati overnight through KBC but could not make the final cut. Harshwardan Nawate owns the distinction of being the only person becoming a crorepati through KBC. So what about the aspirations of all the other people who dream of becoming a crorepati?
Well this article discusses one of the ways of becoming a crorepati …….. Interested, then read on ………..
Ways of Becoming a Crorepati
First let us list down some of the ways of becoming a crorepati
- Participate in ‘Kaun Banega Crorepati’ or similar television show and answer some simple and not so simple questions and walk away with your cheque of 1 crore.
- Buy a lottery ticket or a jackpot (Playwin or Lotto) ticket and hope that you win it.
- Marry a rich person. Someone has rightly said if your father is not a crorepati it is your bad luck, but if your father in law is not a crorepati then it is your foolishness ……….
- Become a filmstar like Shahrukh Khan or Kareena Kapoor. They charge crores of rupees for each film. But not every one can become a SRK or Bebo.
- Invest regularly in a disciplined manner for the long term and become crorepati by retirement or even before that.
Well the first 4 ways of becoming a crorepati depend more on luck. So nothing much we can do about it. But the last method is a more dependable way and requires more of regular investment and discipline and little bit of luck. So we will talk about this method more in detail.
Now you must be wondering can a person become a crorepati by investing a small sum every month. Let me give you a small example. If a 30 year old person invests for the next 30 years till his/her retirement, an investment of Rs 1797 per month is all it will take to reach the magic figure of 1 crore, if the investment earns an annual return of 15%. This is the magic of compounding. Albert Einstein called ‘Compounding’ the ‘Eighth Wonder of the World’. So now after reading the example does becoming a crorepati seem within the realms of reality? Well, while KBC could produce the sole crorepati Harshwardan Nawate, we will make an attempt to make all others crorepatis. Excited ….. So let us discuss this more in detail.
The Journey to Your First Crore
To start planning for the retirement corpus of 1 crore you need to know 2 things:
- Time Horizon: The number of years you have for investment
- Rate of Return: The rate of return the investment is expected to earn
Based on the number of investment years you have and the assumed rate of return you can arrive at the monthly investment that you need to invest to reach the magic figure of 1 crore by retirement.
The number of years available for investment depends on the number of years you have till retirement. The sooner a person starts the better. The below scenario will make it clear the benefit of starting early.
- Assuming that the investment generates an annual return of 12%, to reach the amount of 1 crore in 30 years the investment required for a 30 year old person will be Rs 3277 per month only!!!
- If a person starts 10 years later, then for a 40 year old person the investment required will be Rs 10975 per month which is 3 times more than the earlier monthly investment.
- If a person starts another 10 years later, then for a 50 year old person the investment required will be a whopping Rs 45060 per month to reach the magic figure of Rs 1 crore.
- So if you start at the age of 30 the investment requirement is only Rs 3277 per month, but if you start at the age of 50 the investment requirement climbs to Rs 45060 per month which is 15 times more.
So now you see the sooner you start the better. The magic of compounding works wonders in the long run. Just like our life, investment also is a marathon and not a sprint like KBC. So invest regularly for the long term.
|Age of the Individual||Monthly Investment Required|
|30 Years||Rs 3277|
|40 Years||Rs 10,975|
|50 Years||Rs 45,060|
The table shows the monthly investment amount required based on the age of the individual. The target is 1 crore and the interest rate assumed is 12%
Rate of Return
This is a tricky part or a slightly difficult part. While you can be sure of the number of years you have for investment, you cannot be sure of rate of return your investment will earn. You have to assume the rate of return your investment will earn. When investing in equity mutual funds or balanced mutual funds the rate of return can be assumed from a high of 15% to a low of 7%. This depends on the risk appetite of the person and the product chosen accordingly. The below scenario will make clear how the rate of return assumed makes a big difference.
- Let’s say if a 30 year old person has high risk appetite and assumes an annual return of 15% then the investment amount required to reach 1 crore will be Rs 1797 per month (30 years).
- If the same 30 year old person has a medium risk appetite and assumes an annual return of 12% then the investment amount required to reach 1 crore will be Rs 3277 per month (30 years).
- Now if the same 30 year old person has a low risk appetite and assumes an annual return of 8% then the investment amount required to reach 1 crore will be Rs 7100 per month (30 years).
So you see higher the rate of return assumed lower is the required monthly investment amount. Lower the rate of return assumed higher is the required monthly investment amount. But don’t forget high return always brings high risk along with it. Equities in India have historically given returns in the range of 12-15% annually over the long run.
|Rate of Return Assumed||Monthly Investment Required|
The table shows the monthly investment amount required based on the rate of return assumed. The target is 1 crore and the investment horizon is 30 years.
Combination of Investment Time Horizon and Rate of Return Assumed
The table below explain at various combinations of investment time horizon and the rate of return assumed, how much will be the monthly investment required to reach the magic figure of 1 crore.
|Rate of Return Assumed|
|Time Horizon||Monthly Investment Required|
So now if you are convinced that by investing a small amount every month on a regular basis for the long term can help you reach that magic figure of 1 crore, then what are you waiting for? Start working towards making your 1 crore. You can take a combination of 2 approaches for this. One, as soon as the phone lines for KBC participation open, keep trying your luck to participate in the show. Second, depending on your age and the assumed return rate start making investments. Now if you get a chance to participate in KBC and happen to win the show you can take your 1 crore and forget about your investment program and scrap it all together. People who are not so lucky and do not get a chance to participate in KBC program, can continue with their regular and disciplined investment program and ultimately become a crorepati some time down the line. The ultimate goal is to become a crorepati – either the easy way of KBC or the hard way of regular investments.
So now does becoming a crorepati seem easy and within reach? But then I wonder if every one starts investing and becomes a crorepati, I guess ‘Kaun Banega Crorepati’ will lose it significance. Then not many people will go for the show. Then I think Star TV will have to rework their strategy and come up with something different to woo its lost audience. May be they can come up with a new avatar of KBC with 100 times more prize money and rename the show as ‘Kaun Banega ARABPATI’……..:) Needless to say if that happens then at that time I will also come up with my next article, this time it will be titled ‘Kaun Banega Arabpati’ ………
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