How To Become Rich

Systematic Investment Plan (SIP)

                 by Rajeev Pathak

How to become rich, is the topic of our discussion today. We all wish to be rich, richer, and richest and it is also a fact that each one of us has got limited money.  So, how we can be richer. 

 

                                                How to become rich- A SIP by SIP

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I am not talking of any windfall of money or jackpot. No lottery, no किस्मत का करिश्मा, and no chit fund deposit scheme. So, what is magic, no it is not. 

 

It is the Power Of Compounding and  Saving, Saving and nothing but Saving is the only answer. Whatever you can save from your income after making provision for your daily needs has to be invested in such a way that you become richer tomorrow. 

 

There is a saying in Hindi, ‘बूंद-बूंद से भरता सागर’ and it is true. Your small and regular savings of today can make you a millionaire or crorepati, whatever you want to be.

 

Power of compounding:

           We take an example for easy understanding. If you are able to save only Rs. 10,000/- per month for 10 years, your own saving will be  Rs.12,00,000/-. Now, if you earn a return of say, 12% on your monthly saving, your principal of 12,00,000/- appreciates to Rs. 23,23,391/-. So, you earn Rs. 11,23,391/- as an absolute Return on Investment. 

 

           I have taken 10*10 examples ( 10,000/- pm for 10 years).  Likewise, you can choose any amount or any period, depending upon your own financial profile and future needs.

 

How Rs. 11,000 pm becomes Rs. 3.88 crore?

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  At this stage, I would like to take a query from one of my readers, he is of 29 years of age and presently working in a company. 

 

          His monthly salary is  Rs. 40,000/- per month. At present, he has no saving corpus and spends all the money on eating out, going to movies, and such सैर-सपाटा.  He is married and the couple has a child. He says he wants to be a crorepati. 

 

         He is staying in a house, provided by his company. I presume that he will continue to get housing accommodation from his company till he is working. So, his priority is not to have his own house but to become a crorepati.  

 

         He invests Rs. 11,000/- per month for 30 years. He will be nearly 60 years old at that time, and his investment will be Rs. 39,60,000/-. If he makes a smart choice and saves this money through an instrument where he can get a minimum 12% return, his total corpus will be Rs. 3,88,29,052/-. 

 

         But, there is a catch. If he has to pay tax on this money, he will have to rethink his strategy.

      

        Now we have two problems (We had one earlier). Where to invest and second, how to get tax-efficient returns. If our returns are taxable, our dream will remain as it is. 

 

        At present, the interest rate on bank or Post Office RD is around 7% and that too is taxable.  I will not advise going for direct investment in the share market looking to its high volatility and our own limitations, which I will deal with some other time. So, investment in the Mutual Fund is the only answer. 

 

        We have to choose an appropriate mutual fund scheme depending upon our financial profile. Please also note that mutual funds have several types of schemes and returns from all are not now equally tax-efficient. Also to note that all schemes are not giving the same return. Their performance depends upon so many factors.

 

So, choose wisely and start a monthly SIP (Systematic Investment Plan) right from today as tomorrow will be too late. आपके सफल-निवेश के लिए हमारी शुभ-कामनाएँ.

 

Originally written on 19.07.2017, updated 18.09.2024 

Contact: boirajeev@gmail.com

 

 

Disclaimer

 

Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, please read all scheme-related documents carefully.