How can one make 1 crore in 3 years by investing Rs.15,000 per month?

Aug 02, 2018 11:30 IST 7002 views

Is it possible to convert an investment of Rs.15,000 invested per month into Rs.1 crore in 3 years? Theoretically, the answer is yes; practically the answer is No. If you are to convert a SIP of Rs.15,000 into Rs.1 crore in 3 years, what would it require?

Converting The Possibility Into Numbers

Let us assume that you actually want to convert your Rs.15,000 per month SIP into Rs.1 crore in 3 years. You will be surprised but you are assuming an annualized return on the funds at 155%. Yes you heard it right! Each monthly SIP that you invest must compound itself at 155% per annum to enable you to reach Rs.1 crore in 3 years. The best case returns that you can expect on an equity fund are around 17-18% annualized. Even that is only under extremely good market conditions. Normally, the realistic returns that one can expect in equity mutual funds is around 14-15% and that too if you are invested for a period of around 7 years and more.

Get Realistic With SIP Contributions

Obviously, growing Rs.15,000 per month to Rs.1 crore is a tad too unrealistic as it entails annualized returns of 155% per annum. That is the kind of returns you cannot expect in any asset class, except probably Bitcoins, which are outside the purview of this discussion. The better way is to set the returns at a realistic level of annual return of around 15%. If you consider the return of 15% and if you need to reach Rs.1 crore in 3 years, then what should your SIP contribution be? You will have to contribute nearly Rs.2.22 lakhs per month to be able to reach Rs.1 crore in 3 years at 15% annual CAGR. That kind of monthly SIP is possible only if you are in the really high-income group and have plenty of surplus funds to invest.

How About A More Realistic Tenure?

Normally, the returns on equity funds can be reasonably predicted at around 15% and that too over a longer time frame of 8-10 years. For no,w let us assume that it works out for a 3 year period too. Let us also assume that you can afford to invest for a period of 15 years, which sounds more realistic. In that case, if you invest about Rs.16,244 per month in equity SIP giving 15% returns per annum, then you can reach your target of Rs.1 crore at the end of 15 years. Now that looks the most realistic scenario. You need to reset your investing time frame to reach a goal like Rs.1 crore. Remember, when you do SIPs for longer time periods, then the power of compounding works strongly in your favour.

How About Direct Equities?

 What about direct equities? Can you do SIP on direct equities and reach the figure of Rs.1 crore in 3 years by investing Rs.15,000 per month. Let us look at one of the most incredible performers on the stock market, Wipro. An investment of Rs.10,000 in 1980 will be worth Rs.450 core today. What is that in annualized returns terms? It is just 40.86% over the last 38 years; nowhere close to the 155% returns that you are looking at. Let us look at Havells where an investment of Rs.1 lakh in 1996 is worth Rs.30 crore today. What is the annualized return? It is about 43.9% annualized. Again, nowhere close to the 155% that you are looking at. That means, the greatest of wealth creators in the last 40 years have given around 40% annualized. So expecting 155% in any stock consistently would be too ambitious.

How To Go About The SIP?

The first step is to set reasonable assumptions. The outliers in equities are around 40% annualized returns. With equity funds, the annualized returns can be 13-15% in a best case scenario. Focus on time rather than on returns. That will work better for you!

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