You can become a crorepati even with a monthly salary of Rs 25,000 - here’s how

| TOI Business Desk | TIMESOFINDIA.COM | May 24, 2024, 19:49 IST

When aiming to accumulate a substantial sum like Rs 1 crore, inve... Read More

Saving Rs 1 crore on a monthly salary of Rs 25,000 may seem daunting, but it is achievable with consistent investments over an extended period. To reach this financial milestone, setting a clear monetary target is crucial. Once the goal of saving Rs 1 crore is established, the next step is to identify the most suitable investment vehicle.

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Equity investments have historically delivered higher returns compared to debt instruments. Although equities are associated with higher risk, they have proven to be rewarding and capable of generating superior returns over the long term, says an ET analysis by Anulekha Ray.

When aiming to accumulate a substantial sum like Rs 1 crore, investing in an equity mutual fund through a systematic investment plan (SIP) is a wise choice, the analysis says.

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With a mutual fund SIP, you commit to investing a fixed amount at regular intervals, typically every month. Even if the initial investment amount is modest, the power of compounding and rupee-cost averaging enables you to save a significant lump sum over time.

How To Save Rs 1 crore

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While it's not advisable to allocate a significant portion of your income to a Systematic Investment Plan (SIP), it's crucial to consistently set aside 15-20% of your salary each month for long-term financial objectives. However, investing a smaller sum means it will require more time to reach your target.

Consider this scenario: if you invest Rs 4,000 per month in an equity mutual fund scheme with an annual return of 12%, it will take you slightly over 28 years (339 months) to accumulate Rs 1 crore, assuming you invest consistently without any interruptions, says the ET analysis.
By increasing your monthly investment to Rs 5,000, you can reduce the time needed to save Rs 1 crore to just over 26 years (317 months) at the same 12% interest rate.
If you can allocate 30% of your salary, which amounts to Rs 7,500 per month, you can achieve your Rs 1 crore goal in 23 years or 276 months, assuming the same annual interest rate.
Furthermore, if you can invest Rs 10,000 every month, which is 40% of your monthly salary, you can reach Rs 1 crore in slightly more than 20 years or 248 months.
These examples demonstrate that the more you can invest each month, the quicker you can attain your financial goal of saving Rs 1 crore.

SIP mutual fund at 12% return every year
SIP amount every month	Annual increase (%)	Number of months it will take to save Rs 1 crore
Rs 4,000	No increase	339
Rs 4,000	5	301
Rs 4,000	10	264
Rs 5,000	No increase	317
Rs 5,000	5	281
Rs 5,000	10	246
Rs 7,500	No increase	276
Rs 7,500	5	244
Rs 7,500	10	215
Rs 10,000	No increase	248
Rs 10,000	5	220
Rs 10,000	10	194

Based on this calculation, you will achieve your goal of becoming a crorepati in just under 22 years (264 months) if you increase your SIP installment by 10% annually.

Step-up SIP strategy:

Accumulating Rs 1 crore can be achieved more quickly by employing a step-up SIP strategy, which involves increasing your monthly SIP installment annually as your salary rises. This approach not only helps combat the negative impact of inflation on your savings but also enables you to align your savings with your income growth.

By starting with a monthly SIP investment of Rs 4,000 and increasing it by just 5% each year, you can reach your goal of Rs 1 crore in approximately 25 years (301 months). The step-up SIP works by gradually raising your investment amount.

For example, if you begin with Rs 4,000 per month, after a year, you would increase it to Rs 4,200 per month for the entire second year. In the third year, you would invest Rs 4,410 every month, and so on.

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The time required to accumulate Rs 1 crore decreases as you increase your initial SIP amount. If you start with Rs 5,000 per month and raise it by 5% annually, you can achieve your target in a little over 23 years (281 months). By increasing the SIP amount by 10% each year, you can become a crorepati in 20.5 years (246 months).

Similarly, starting with a monthly SIP of Rs 7,500 and increasing it by 5% annually, you can save Rs 1 crore in 20.3 years (244 months). A 10% annual increase would allow you to reach your goal in just under 18 years (215 months).

If you begin your SIP investment with Rs 10,000 per month and raise it by 5% each year, you can accumulate Rs 1 crore in 18.3 years (220 months). By increasing the SIP amount by 10% annually, you can achieve your target in a little over 16 years (194 months).

Remember, even if you can't invest a substantial sum initially, don't worry. Increase your SIP amount only if your salary increases. Consistency and gradual increments can help you reach your financial goals.

SIPs are generally ideal for long-term investments due to the principle of compounding. When investing in a mutual fund SIP, it's important to commit for the long term. Maintaining patience and consistently investing over the years is key. If you can continue your SIP without interruptions, cancellations, or withdrawals during market downturns, you are more likely to achieve your financial goals.

How To Become A Crorepati With National Pension System

National Pension System (NPS) also commonly known as the National Pension Scheme is emerging as a popular investment-cum-retirement product. According to experts, the NPS encompasses all the desirable attributes of a retirement savings product: it offers long-term investment potential with minimal costs and a low-risk profile. So what are the benefits of NPS? How much retirement corpus will you get with NPS and what will be your monthly pension? Can you become a crorepati by investing in NPS? We take a look at top 10 things you should know about NPS, NPS calculator, scheme details, returns etc. (AI image)

NPS is a market-linked voluntary contribution scheme designed to assist individuals in saving for retirement. This scheme is seen by experts as an effective investment for enhancing retirement income. Introduced by the Central Government, NPS aims to provide individuals with a pension income to support their retirement needs. (AI image)

The NPS voluntary model is accessible to all Indian citizens, including those residing abroad, aged between 18 and 70 years. You can open an NPS account online via the eNPS portal. The option to open an NPS account remains available until the age of 70, with the possibility to continue contributions until the age of 75. (AI image)

NPS Calculator: If one were to assume that you start investing in NPS at the age of 22 with Rs 10,000 per month contribution, and invest up to an age of 60 years. The total years of your contribution would be 38. We have taken an expected return on investment of 10%, with annuity purchase at 40% and annuity rate of 6%. In such conditions, your total retirement corpus would exceed Rs 5 crore with an investment of over Rs 45 lakh. Your expected monthly pension would be over Rs 1 lakh. The example above is for representative purposes only. Each individual’s corpus will vary depending on the contributions, returns etc.

NPS scheme is structured into two tiers. Tier-I Account serves as the primary retirement account where the regular contributions made by the subscriber and/or their employer are credited and invested based on the scheme/fund manager selected by the subscriber. The minimum contribution required to open this account is Rs 500, with a minimum annual contribution of Rs 1,000. (AI image)

NPS Tier II Account: This is an optional withdrawable account that can be accessed only if you have an active Tier I account. Withdrawals are allowed from this account as needed. The minimum contribution required to open this account is Rs 250, with no restrictions on the minimum contribution per year. (AI image)

Under the NPS, there are four asset classes: Asset Class E, comprising Equity and related instruments; Asset Class C, consisting of Corporate debt and related instruments; Asset Class G, encompassing Government Bonds and related instruments; and Asset Class A, which includes Alternative Investment Funds such as CMBS, MBS, REITs, AIFs, Invlts, and others. (AI image)

The Tier I option of NPS offers significant tax incentives. Contributions to the scheme qualify for deduction within the overall Rs 1.5 lakh limit under Section 80C. Additionally, there's an extra deduction of Rs 50,000 for contributions under Section 80CCD(1b). This is an exclusive benefit available only to NPS contributors, over and above the Section 80C deduction. (Image source: Freepik)

NPS Lesser Known Tax Benefit: The third method of tax saving through the NPS can significantly impact an individual's tax liability. According to Section 80CCD(2), up to 10% of the basic salary contributed to the NPS is tax-exempt. For instance, if an individual's basic salary is Rs 50,000, their employer can reduce another taxable component by Rs 5,000 and contribute that amount to the NPS on their behalf each month. The total annual contribution of Rs 60,000 to the NPS will reduce the employee's annual tax liability by Rs 18,720, according to an ET analysis. However, this NPS contribution must be included in the individual's emoluments and can only be facilitated through the employer. Notably, this deduction under Section 80CCD(2) is available under the new tax regime as well. (Image source: Freepik)

Investors in NPS now have the option to select from 11 pension fund managers and are permitted to switch their pension fund manager annually. The fund management charges of NPS are significantly lower compared to those of mutual funds and insurance companies. For instance, if you invest Rs 5,000 in an SIP with a mutual fund that charges 2% annually, you would pay approximately Rs 19 lakh in fund management fees over 25 years. Conversely, the same investment in NPS would cost you only Rs 1 lakh over 25 years, assuming the maximum 0.09% fund management charge of NPS. These calculations are based on an assumed compounded annual return of 9%, as per an ET analysis. The lower charges lead to higher returns for the investor.

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