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What will be the Value of Rs 1 Crore After 20 Years?

dateKnowledge Centre Team dateNovember 25, 2022 views168 Views
1 Crore Corpus | Retirement Planning

You only have two things to worry about with wealth – inflation and taxes. Inflation reduces the value of your wealth over time. You can also call it the erosion of value as taxes impede the growth of this money. So, for example, if you have Rs 1 crore today, invested at 5% p.a. where average inflation is also 5% p.a. and tax rate is 20%, the following will happen:

  1. Rs 1 crore is eroding at a rate of 1.43% p.a.
  2. Value of Rs 1 Crore in 20 years will be Rs 2 crore in your account
  3. Real value, after adjusting for inflation, (also called purchasing power) of today’s Rs 1 crore will be equal to Rs 75 lakhs in 20 years

If you want to get a first-hand experience of inflation, think of your favourite item that you purchased 15 years ago. How much did it cost then? How much does the same item cost today?

Value of Rs 1 crore in Different Investments After 20 Years
Assets Investment Value* Real (inflation-adjusted)*
Mutual Funds Equity 8.4 Crores 5.9 Crores
Real Estate 7.2 Crores 5.1 Crores
Stock Market 6.6 Crores 4.5 Crores
Term Deposit 4.1 Crores 2.9 Crores
Gold 3.7 Crores 2.6 Crores
Savings Account 2.1 Crores 1.5 Crores
* Based on return and inflation estimates in the 10 yr. avg. return table

Learn why should you consider inflation while planning your retirement?

In a high growth economy like ours, interest on savings has been 3.5% to 6% p.a. while inflation averages at 4% to 5% over 20 years. Even if you do not pay tax on the interest you receive in this deposit, your wealth in savings continues to erode.

How to Beat Inflation & Taxes?

You need to invest for a longer time. This means you need to allocate your money to long-term investments. Long-term investments offer you the following trade-off:

Pros Cons
- Tax saving, postponing, exemption
- Higher rate of return
- Lower liquidity
- Higher risk

Think of long-term investments like planting a fruit tree. If you wait long enough you stand to gain more, but you also face more risk because of multiple factors. You can try minimising the risk and increasing your yield.

Similarly, with long-term investments, you try to counter or hedge against the cons and maximise advantages. Here’s how:

  1. Know your short and long-term goals
  2. Diversify your investments
  3. Use the SIP (Systematic Investment Plan) mode of investment in volatile assets, like equity and Gold
  4. Keep an eye for EEE (exempt, exempt, exempt) investments

Most investors don’t start with Rs 1 core in their kitties. But, most do have a said or unsaid goal of building a Rs 1 crore corpus. So, how soon can you get to this huge milestone?

Assets 10 Years Avg. Annual Return*
Mutual Funds Equity 11.2%
Real Estate 10.4%
Stock Market 9.7%
Term Deposit 7.3%
Gold 6.7%
Savings Account 3.8%
* by July 2021

Based on these historical returns, if you want to build a corpus of Rs 1 crore, you will need the following years, depending on your investment capacity:

Years to Build Rs 1 Crore with Monthly Investment of…
(Rs Per Month) 10,000 20,000 30,000 40,000 50,000
Equity Mutual Funds 21 16 13 11 9
Real Estate 22 16 13 11 10
Stock Market 23 17 14 11 10
Term Deposit 27 19 15 13 11
Gold 28 20 16 13 11
Savings Account 38 25 19 15 13

So, if you invest in equity mutual funds, you will have a corpus of Rs 1 crore, in 21 years with an investment of Rs 10,000 p.m. The same will take just 9 years if you invest Rs 50,000 p.m. in equity mutual funds, and so on.

How to Start Building Wealth?

The initial phase of your life should focus on generating wealth because that is when you will have the maximum risk appetite. You must gradually move into wealth conservation mode as you inch towards retirement. The last phase is when you live off your savings and this is called the distribution mode.

Factoring in taxes is essential when planning investments. Investing in financial instruments that give tax exemption on investment and/or maturity is ideal. Following investments are popular for their tax savings and above inflation returns:

1. Public Provident Fund (PPF):

Tax-free maturity and growth, fixed returns, 15 years minimum investment tenure. Partial withdrawals after 5 years. Invest up to Rs 1.5 lakhs a year.

2. Unit Linked Insurance Plans (ULIPs):

Tax-free maturity and growth if annual investment remains below Rs 2.5 lakhs. Market linked returns, portfolio investment, bonus additions and life cover. Minimum investment period 5 years. Partial withdrawals are allowed after 5 years of investment.

Ways to Maximize your Returns from ULIPs

3. Equity Mutual Funds:

Equity mutual funds are one of the most flexible investments. Long term capital gains from equity mutual funds are exempt from tax up to Rs 1 Lakh.

Growth, Preservation & Distribution of Wealth with ULIP

A ULIP is an investment plan that offers you a choice of investing in equity, debt, or a combination of both. You can also change the portfolio mix depending on your risk appetite. These two features make ULIPs an ideal choice for your long-term goals.

ULIP plans like Invest 4G from Canara HSBC Life Insurance, allow you to start investing any time after 18 years of age and continue up to 99. Such long investment tenure allows you to build, grow and distribute wealth with a single investment.

The following features of Invest 4G ULIP make it a perfect investment for your wealth goals:

  1. Invest in a mix of diversified equity, debt and liquid funds
  2. Use auto fund rebalancing to manage portfolio risk without manual intervention
  3. Bonus additions for long-term investors expedite corpus growth
  4. The partial withdrawal feature after 5 years of investments allows for good liquidity in emergencies
  5. The Systematic Withdrawal Plan allows you to make tax-free withdrawals from the ULIP
  6. The maximum holding age of 99 years allows you to draw a pension without withdrawing and reinvesting the money
  7. Invest up to Rs 20,000 P.M. for tax-free wealth and income

Whether you want to collect Rs 1 crore or more, ULIPs like Invest 4G are equipped with a range of features you can exploit. Although the corpus may seem large today, its value will be less than Rs 2 crore 20 years later.

So, invest for the long-term, invest in equity and as far as possible make sure your investments don’t make you pay higher taxes every year. ULIP helps you avoid tax on your invested money completely.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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