The idea of reaching the Rs 1-crore milestone may look formidable, but with time on your side and the power of compounding at your disposal, you can boldly embrace this financial challenge.
This phase of your working life is when you earn and save for retirement, and a substantial corpus ensures a comfortable retirement.
According to the FundsIndia Research Report, if you invest Rs 30,000 per month with a 10% annual increase in contribution every year, you can attain your first Rs 50 lakh in 7 years at an assumed rate of 12%. However, it takes only half the time, just 3 years, for the second Rs 50 lakh, and a mere 2 years for the third Rs 50 lakh.
Getting that first Rs 1 crore takes 10 years. Adding another 4 years will halve the time required for the second Rs 1 crore, provided you keep investing. The third Rs 1 crore can be achieved in just 2 years.
This underscores the remarkable power of compounding and increasing your contribution every year.
By the 19th year, you can amass a corpus of Rs 5 crore, with the last Rs 50 lakh coming in just 8 months.
It is evident from the above that three things primarily help achieve the goal of Rs 5 crore in 19 years: disciplined investing, increasing contribution and power of compounding. Disciplined investing involves sticking to a systematic investment plan (SIP) and maintaining, suiting one’s needs and financial goals. Whereas, the power of compounding is about reinvesting the returns of your investment, which multiplies over time, leading to substantial growth in your wealth and by increasing[ the contribution you can speed up the investment process.
For example: If you do not increase the contribution by 10%, it will take longer to reach the goal. For example, the first Rs 50 lakh will take 8 years, the next Rs 50 lakh will come in 4 years, and the third Rs 50 lakh can be achieved in the next 3 years. The Rs 5 crore target can be achieved in 24 years.
As equities tend to provide higher returns over the long term, you can consider investing through a Systematic Investment Plan or SIP in large-cap funds to generate a return of around 12%. It’s crucial to consider that the remaining time in your working life plays a pivotal role, as disposable income tends to be lower in the early years.
Having more time allows for a more significant compounding impact. Once you’ve built your first crore, the returns on that amount also contribute to growth, underscoring the importance of achieving the proverbial “first crore.”
However, it is crucial to understand that investing is subject to market risk. The returns can fluctuate, and the actual return could be higher or lower. It’s significant to periodically review your investments and make necessary changes.