Money Tips: Create a fund of Rs 1 crore while working, know-how...
The dream of becoming a ‘crorepati’ is quite common among investors, especially for those who save and invest regularly. Investing in mutual funds can make this dream a reality, provided you have patience and a long-term investment plan. The power of compounding is very important in this investment journey.
The 8-4-3 rule helps you grow your savings faster through the magic of compounding. It is a simple way to understand how your investments can grow. It is not a specific investment strategy but it guides you towards your financial goals. According to this rule, you can divide your investments into three phases – initial growth, rapid growth, and rapid growth.
How does this rule work?
1. Initial growth (1-8 years): In the first 8 years of investing, your money grows slowly. This is the time when the process of compounding starts, but its effect is slow in the initial stage. For example, if you invest Rs 20,000 every month and earn 12% annual interest, the amount will grow to Rs 32 lakh in 8 years.
2. Rapid growth (9-12 years): In the next 4 years, your investment starts showing results rapidly. The magic of compounding works here, and your money starts growing at twice the speed. With this, your investment will again reach Rs 32 lakh in the next 4 years, i.e., the total amount becomes Rs 64 lakh.
3. Rapid growth (13-15 years): In the last 3 years, your investment has grown rapidly. Because of compounding, your investment grows almost as much as it did in the first 4 years. In 15 years, the amount can reach Rs 1 crore.
How does the power of compounding work?
Compounding means that the interest you earn also earns interest. This makes your investment grow every year, leading to huge profits in the long run. The longer you keep your money invested, the more the effect of compounding is visible.
What to do to become a millionaire?
1. Regular investment: The most important aspect of investment is that you invest regularly. Even if it is a small amount, keep it invested for a long time. This will give you more time to compound and your investment will grow rapidly.
2. Be patient: The pace of investment is slow in the first few years, but by being patient it starts growing rapidly. Therefore, do not stop investing in the middle in the pursuit of getting quick profits.
3. Think for the long term: The maximum benefit from compounding is achieved when you invest for a long period. So keep your goals long-term and plan your investment accordingly.
Expert advice
Experts say that investing should be started as early as possible. This not only gives time to your investment but also helps in getting the maximum benefit of compounding. Mutual funds, SIPs (Systematic Investment Plans), and regular investments in equities can make the power of compounding even more effective.
By following this 8-4-3 rule, any ordinary investor can easily fulfill his dream of becoming a 'crorepati'. All it takes is patience, discipline, and a proper investment plan.
