Crorepati key: more than maths, it’s about attitude
Investors love the idea of a small investment growing to Rs. 1 crore. But there's a lot more to it than just the arithmetic.Updated: Jul 22, 2012 22:33 IST
Investors love the idea of a small investment growing to Rs. 1 crore. But there's a lot more to it than just the arithmetic.
For at least a decade now, investment advisers have been grappling with the one crore problem. The one crore problem most often manifests itself in the form of this question: If I invest in x investment at the rate of y per month, then will I be able to accumulate Rs. 1 crore in z years. You can see this question in various online forums, financial agony aunt columns in publications and even magazines.
Generally, the adviser is then expected to solve this equation for various values of x, y and z. Depending on which of the three variables the advice-seeker has filled in himself, the answer can be given to various degrees of usefulness or uselessness. For example, if only z (the number of years) is an input, then a reasonably useful answer can be given. Unfortunately, in most questions, both z (years) and y (monthly amount) is a given. Sometimes, even the asset class is specified, as in: I can invest Rs. 30,000 a month. I'd like it to become a crore in 10 years. Which mutual fund should I invest in? Then, the question becomes like something out of a Vikram-Betal folk tale. There’s no answer because the question is based on invalid assumptions.
The most important input is not what you invest in, but a whole set of things that one must do, like, investing steadily for the entire period without getting side-tracked by events. The number one cause of long-term savings strategies going wrong is getting misdirected. Equity markets get in trouble and people stop investing, or pull out. Then, markets go up, prompting people to put money back and then ‘compensate’ by putting in even more.
The magic formula lies not in the numbers and names, but in managing one’s own attitude, psychology and actions.
First Published: Jul 22, 2012 22:32 IST