Crorepati formula: Tips to make Rs 1 crore in stocks in the quickest time

NEW DELHI: How does one become a crorepati? It's a question that remains dominant in the lives of almost all of us. 

Many of us struggle throughout our lives to ensure that we can become one, and until and unless one is a big corporate honcho or high-profile businessman, such dreams remain a dream for the ordinary middle class Indian. 

That dream car, the dream house and the dream retirement elude us all, but they shouldn't. The answer to those dreams lies in the equity market. To be more specific, the answer lies in systematic investment plans (SIPs) of equity mutual funds. 

"If a retail investor invests in a diversified equity fund through a systematic investment plan over the long term, she/he can become a crorepati. For example, Rs 20,000 invested through a monthly SIP for about 15 years can grow to over Rs 1 crore, if you assume a rate of return of 12 per cent," Nimesh Shah, MD & CEO, ICICI Prudential AMC, said in an interview with ETMarkets.com. 

"Over the years, systematic investment plan or SIP has proven to be a simple yet powerful tool to make the most of the equity market through its ups and downs. It is the best way for new investors to approach the equity market for long-term wealth creation and attain financial goals," Suresh Soni, CEO, DHFL Pramerica AMC, told ETMarkets.com via mail. 

Why SIP? 

An SIP is a financial planning tool offered by mutual funds that allows you to invest small amounts at regular intervals over a long period. It also allows one to use the power of compounding to generate big returns in a portfolio. 

In the equity market, the general approach to investing is to time the market whereby one tries to buy a stock or an index at a certain level and book profit when it has run up significantly. 

That approach often leads to "common mistakes in asset allocation by common investors, who tend to buy high (caused by exuberance of a bull market) and sell low (due to the hopelessness caused by a bear market)," says Gautam Sinha Roy, Fund Manager, Motilal Oswal AMC. 

"An SIP can address this wrong approach to asset allocation by majority investors in a fool-proof way. Common investors should never try to time the market. All they simply need to keep doing is maintain the regular SIP payments in order to completely negate the impact of wrong timing that can hit return on investment," he said. 

SIP or no SIP, equity investment will always be considered a game of deep-pocketed people. For the ordinary middle-class Indian, the stock market will perhaps be the last place to make their retirement planning fool-proof. 

For many of them, the experience of the 'dot com' bubble of 2000 or the financial crisis of 2008 are still very raw. Many retail investors burnt their fingers in the euphoria of those times. 

Such notion holds no relevance, believes Harsha Upadhyaya, Chief Investment Officer - Equity, Kotak Mahindra Asset Management Company. 
"Of the many benefits of SIP investing, one is that you can start an SIP by investing as low as Rs 500 a month, which allows even a small investor to build long-term wealth. An SIP can allow investors to invest in a regular and disciplined fashion," he said. 

Starting early 
Starting your SIP early is the first condition to becoming a crorepati. 

"One needs to start early. This will help the investor use the power of compounding. Especially over a long period, the difference between starting to invest early versus starting late can make a significant difference to your wealth," Upadhyaya said. 

A tiny bit of delay can cause a significant gap in your final output. "Research has shown that even a small delay in investing can cause wide output gap at the time of redemption in the long run," he pointed out. 

Going about your SIP 
"Investors should first chalk out their long-term financial plans to identify how much mutual fund investment one needs to make every month and what should be the debt-equity mix," said Gautam Sinha Roy of Motilal Oswal AMC. 

The next step is to decide on the right fund house and fund manager. They are the guys who will be looking after your money every single day till you redeem and, therefore, they are like the coach on who you want to entrust your life's savings. 

"A lot of time and energy is spent in this process. Once the basic plan is inked, it is really a simple matter of unemotional execution by investing the routine SIP instalments on the scheduled dates," Roy said. 

Mix it up 
SIPs are not just about pouring all the money into the equity market. The mark of a great portfolio is distribution of risk and diversification across asset classes. 

"One important element in mutual fund investing is the split in asset allocation between equity and debt. This needs to be reviewed every few years to see if the risk profile of the investor has changed and, hence, allocation split needs to be changed," Roy said. 

Become the gardener 
SIP investing is not about putting in some money and forgetting it, the way Warren Buffett will have you do it. It is more like being a gardener, who looks after his plants almost every day just to ensure weeds are not cropping up. 

"Investors will do well to monitor their investments over a medium to long-term and take a course correction if needed," said Suresh Soni of DHFL Pramerica AMC. 

"Investors need to manage their investments at an overall portfolio level instead of approaching them in a piecemeal fashion. SIPs are constituent of such a portfolio and as such require attention from time to time. An investor must, therefore, monitor the performance of an SIP with reference to its benchmark and ascertain the long-term wealth creation potential that it carries," Upadhyaya said. 

Taking home the crore 
If you have reached this point, you did well. But just investing is not enough, you have to take home all that moolah too. 

There's a systematic way to do that, too. Systematic withdrawal plans (SWP) can help you redeem your investment when you hit the retirement buzzer. 

"Even withdrawal of funds from equity products should ideally be done in tranches. A systematic withdrawal plan (SWP) can help you achieve this objective," Roy said. 

Whatever be the case, the investment objective must remain sacrosanct and the investment plan must be made to accomplish the goal within the given time horizon and within a prudent risk framework, said Upadhyaya.

Source : Economics Times