Becoming a crorepati is easier than you thought

You must have come across, or at least heard of, crorepati investors at some point in time and surely that would have influenced you. At some point you may have nursed this ambition to be a successful investor, a crorepati, but probably did not have an understanding of the investment strategy behind it.

Actually, every investor dreams of becoming a crorepati, unfortunately, many don't really know how to make that happen. If you are one of them, then there is help at hand.

Many consider accumulating Rs 1 crore (Rs 10 million) an uphill task. Indeed it is difficult and there is no denying this. But, in our view, it is certainly not impossible. It's all about having the right approach.

Start by thinking rationally. Many a times, investors get impatient because the targets they have set for themselves are beyond them. You have to accept the fact that Rs 1 crore cannot be accumulated overnight, and hence your roadmap to accumulating such a large sum of money must be realistic in terms of investment amounts, tenure and expected return.

By breaking your target of becoming a crorepati into smaller components like investment tenure and expected returns, you immediately turn a very formidable objective into something that is imminently achievable.

Needless to say, this is just the first step. The next step is to mobilise your resources and make necessary investments to achieve your objective of becoming a crorepati. For this you must first know how much you need to invest to achieve the Rs 1 crore target. In this note, this is exactly what we have outlined.

Broadly there are two options for investors; you can select the one that suits your requirement. While the first option deals with determining the amount that you have to invest to accumulate Rs 1 crore over a stipulated time frame (i.e. you have a defined investment time frame); the second option will aid you in finding the tenure over which your investments can become Rs 1 crore (i.e. you have a defined investment amount). In both the options, you have to assume the rate of return at which you expect your investments to grow.

Option 1: You know when you need Rs 1 crore; but don't know how much to invest

If you have defined the time frame over which you want to accumulate Rs 1 crore, but don't know how much you will have to invest then this is the option for you.

Let us understand this with the help of an example. Let's say you want to build a corpus of Rs 10 m, 20 years from today. You expect your investment portfolio to generate a compounded annualised return (i.e. CAGR) of 15%. So in this case, you have to invest approximately Rs 97,615 pa or Rs 7,624 p.m. Note that, while calculating monthly investments, you have to take the number of months instead of years (in this case it will be 240 months).

Option 2: You know how much you can invest; but haven't defined a time frame

Unlike in Option 1, where you know the investment tenure over which you want to accumulate Rs 10 m, over here the tenure is fluid so you still have to determine the same. What is clear for you over here is the amount you can invest annually.

For example, if you can invest Rs 50,000 p.a. and expect your investments to grow at 15 % pa; then your investments will take approximately 24.6 years to become Rs 1 crore.

For the uninitiated, the calculations might prove a little heavy. But then, help is at hand; they can try Personalfn's Crorepati Calc, which can solve both the options discussed in this note.

Once you are clear with the numbers and know how to proceed with your investments, the next step is to make actual investments. This is where the services of an honest and competent financial advisor will come into play. He is the one who will draw an investment plan tailor-made for you.

Investors must note that like any other financial planning activity, becoming a crorepati is not a one-time exercise. The reason for this is that, in the calculations, you have to make assumption like rate of return, which is not fixed and are subject to change. Besides, over time, with an increase in your earnings, your capacity to invest may increase.

Also possibly, some of the investments recommended by your financial planner may not deliver in line with expectations, so they may have to be replaced. Some of these factors could disturb your plans to become a crorepati and hence it's important that you (along with your financial planner) take corrective steps to ensure that you are on track at all times.