Anyone may become rich by regular and systematic investments over a long period as the power of compounding will do wonder to your investments if adequate time is given.
Who doesn’t want to be a crorepati in this world? In fact, everybody would like to accumulate a crore of rupees as soon as possible by investing as much as one can. However, for retail investors, who don’t have a big amount for lump sum investments, becoming a crorepati by monthly savings is always like a big dream.
Thankfully, you need not be a rich person to accumulate a crore of rupees. In fact, anyone may become rich by regular and systematic investments over a long period as the power of compounding will do wonder to your investments if adequate time is given.
Now, let’s see how the power of compounding and the duration create wonder and make you a crorepati through monthly investments of Rs 10,000 in some popular investment schemes like Recurring Deposit (RD), Public Provident Fund (PPF), Unit Linked Insurance Plan (ULIP) and Mutual Fund (MF).
Recurring Deposit (RD)
Like fixed deposits (FDs), recurring deposits are one of the most popular options for retail investors in India. The only difference between FD and RD is that you may invest in a fixed deposit if you have lump sum money, while in RD, you may invest small amounts of money at regular intervals. So, monthly RDs are very popular among risk-averse investors. You may open an RD account in a bank or in a Post Office.
Interest rates on RD vary from bank to bank and the current rate for 5-year RD account is around 7 per cent. Assuming that the current rate will remain unchanged during the investment period, you may accumulate Rs 1 crore in 28 years by investing Rs 10,000 at the beginning of every month.
Public Provident Fund (PPF)
PPF is a very popular tax-saving option because it bears sovereign guarantee and is secure and also provides complete tax benefits. A PPF account may also be opened in a bank or in a Post Office. Unlike RDs, interest rate of PPF is the same across banks and Post Offices as the government decides the rate on quarterly basis.
Assuming that the current PPF interest of 8 per cent will remain the same over the investment period, you may accumulate Rs 1 crore in 26 years by investing Rs 10,000 at the beginning of every month.
Unit Linked Insurance Plan (ULIP)
As the name suggests, ULIPs are insurance plans under which the premium collected is predominantly invested in market-linked products, including equities and equity-related instruments. ULIPs are offered by insurance companies as well as by some Asset Management Companies (AMCs) like LIC MF and UTI.
Assuming long-term compound annual growth rate (CAGR) of 10 per cent, you may accumulate Rs 1 crore in 23 years by investing Rs 10,000 in the beginning of every month.
Mutual Fund (MF)
There are various categories of mutual funds, but equity MFs are considered suitable for long-term wealth creation. MF schemes are offered by AMCs and are subject to market risks, which directly affect the return in the short term. However, the long-term returns in MFs are much higher than fixed-income products in the long term.
Assuming long-term CAGR of 12 per cent, you may accumulate Rs 1 crore in 21 years by investing Rs 10,000 at the beginning of every month.
Thus, you should invest as per your risk appetite and taking into consideration your financial goals as well as the time-frame during which you want to accumulate Rs 1 crore.