Here’s how you can save Rs 1 crore over 20 years

Small savings a day may give you plenty to smile about in old age.

Disclaimer: This story is for informational purposes only and should not be taken as an investment advice.

If ‘time value of money’ had to teach us anything it would be that money available at the present time is worth more than the same amount in the future. Nevertheless, money put away for a rainy day is always a bonus.

In a mutual fund query written in to ET Mutual Funds, a government employee asked one of the most common questions that is on everyone’s minds today – ‘Am I doing enough?’

The 27-year old said that the person's monthly salary was amounting to Rs 40,000. However the employee's ambition was to save Rs 1 crore over a span of 20 years.

“I am a 27-year-old government employee. My salary is Rs 40,000 per month. I have three LIC policies - total Rs 2,500 per month and one HDFC ULIP plan- Rs 1,000 per month, two mutual funds - ICICI Prudential Balanced Fund: Rs 1,000 per month and Sundaram Rural India Fund: Rs 1,000 per month. All are for more than 20 years. I am also investing Rs 5,000 per month in PPF. I want to create Rs 1 crore after 20 years. Are there any changes or additions required?”

So far the employee’s investments per month were amounting to over Rs 15,000 per month.

However the reply to the question asked pointed out that to save Rs 1 crore in 20 years, savings per month needed to be much more than that.

“If you want to create Rs 1 crore in 20 years, then you need to save at least Rs 9,600 per month assuming an annual return of 13 per cent. But your current portfolio is too heavy on debt-oriented products which will only generate 5-7 per cent returns. So if we take an average of 7 per cent returns, then you have to invest at least double the amount to achieve the same goal, that is Rs 19,500 per month,” the ET report said.

In an earlier report, we spoke about how small savings every month help you become a ‘crorepati’.

Investing Rs 6,000 in SIPs per month for 17 years with an expected rate of return of 20% per annum would mean your investment amount is over Rs 12,00,000 for the entire time period.

And at the time of maturity, earnings would be much higher.