Tell me the worth of Rs 100, at 10 per cent interest, after 150 years. Is it in thousands, lakhs…? Nah! That’s Rs 16 crore! And the same amount would grow to Rs 1899 crore after 200 years. No, that is no magic, but simply the power of compounding, described as the eight wonder of the world by Albert Einstein himself. Imagine someone in your family might have left Rs 100 in a bank account 200 years ago. You would already have become a billionaire today! Simple.
Still unimpressed? Because you don’t have the patience to wait for such a long period? Then try some other ways and avenues. You may get the desired result even within 3 to 10 years, depending on the kind of investment and the risk involved.
Says Ashish Kapur, CEO, invest Shoppe India Ltd, “We believe the best way of making money, if you were to start with an empty kitty, is to make investment regularly in a disciplined manner. And when it comes to regular investing, there is nothing to beat SIP.”
Thus, an extremely conservative person can easily look forward to an 8 per cent return compounded monthly and make a crore by investing Rs 1.37 lakh every month for five years.
If you are unable to make that kind of investment, then you can safely decrease the investment amount by increasing the period. For instance, if you save just Rs 5,000 every month and invest it in an absolutely safe instrument, which gives 8 per cent return compounded annually, you will amass over Rs 1 crore in 35 years alone.
However, if you are also willing to take risk for higher returns, then only the sky is the limit.
Says Amit Sarup, director, Religare Venture Capital Ltd, “There are various investment options which can increase the investor’s wealth multifold over a time span. At the safest end of the spectrum are relatively risk-free investments such as National Savings Certificates, fixed deposits, debt mutual funds etc. which in current scenario can give a return of approximately 8-9 per cent pa and can double your money over a period of 8 to 9 years. However, one can opt for a high risk investment and venture into equities to get a much higher return in a shorter time-frame.”
One needs to understand, however, that equity markets are very volatile and can also result in capital getting eroded in case of negative movements in equity markets. For an individual one of the best ways to invest into equities is by investing via the mutual funds route. In the past couple of years, the returns have been phenomenal with average returns being up to as high as 40 to 50 per cent per annum. However, even if one looks at the performance over much longer periods, there are many schemes which have given an annual return between 25 and 30 per cent.
Thus, if one looks at this option, one can invest Rs 50 lakh and reach a figure of Rs 1 crore within three years. If one wants to invest a smaller amount, an investment of just Rs 15 lakh can increase and reach the magic figure of Rs 1 cr within seven to eight years, going by the historical data.
Now if you were to combine the power of compounding and the power of equity, you require mere Rs 13,500 monthly to be a crorepati in 10 years at 30 per cent return. If 30 per cent sounds unrealistic, then you can settle for Rs 26,500 every month to be a crorepati in 10 years at 20 per cent annual return. And given the kind of salaries people are getting today, these sums are not that difficult to invest.
Real estate investment is the other option by way of which one can multiply the investments at a good rate of return. Like equity markets, returns over the past 2-3 years have been phenomenal with investment values doubling or even tripling during this phase. True, the realty market is currently witnessing some corrections in prices, but that is mostly happening where the prices are or were abnormally high owing to speculative activities and artificial pricing. This is in fact good for genuine buyers as it will drive speculators out of the market. Anyway, this is only a temporary phase and the real estate market should soon be back on track as property prices always rise in the long run.
Another avenue whereby one can make high returns is by taking the private equity or venture capital route. This involves investing into equity of emerging business which is normally not listed on any stock exchanges at the time of investing. However on listing, these investments can yield multibagger gains and can probably multiply an investor’s money at a very fast rate. The risk involved is also very high as the business itself carries the risk of failure. Thus one has to do an in-depth study into various factors before taking such an investment decision. Also since the deal size is large and not available publicly, it may not be possible for all investors to opt for this route.
“Other ways are trading in equity derivative, where one can take huge position by just paying small margin money. It, however, entails a huge risk as the positions taken by players are levered several times over. Commodities, art etc also provide avenues for acquiring humongous wealth provided luck favours you,” informs Kapur.
But why to bet on luck when you can rely on the power of compounding?
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