How to make Rs. 50 lakh in 5 years?

Anne E. Evans
How Can You make Rs. 50 lakh in 5 years? - Groww

The main purpose of investing is to let your savings earn for you, potentially growing your wealth over time. While many investors have this generic objective, there are others who are more into goal-based investing – accumulating money to meet a certain goal within a certain time frame.

Making Rs. 50 lakh in five years is one such tempting goal that many might harbour dreams of but don’t know how to achieve it. To get started, there are various parameters that need to be taken care of.

How to plan for the amount?

  • The goal is to make Rs. 50 lakh in 5 years. This requires planning the right proportion of investment (say Rs. 20,000) at appropriate frequency (say monthly). This can be through Systematic Investment Plans (SIPs) or lump sum, or both in mutual funds schemes. 
  • Your risk profile as an investor plays a big role in reaching the figure of Rs. 50 lakh and, accordingly, asset allocation should be done.
  • A review of the financial performance should be done periodically, say every six months. If the allocation is not achieving the required returns, the asset allocation needs to be tweaked.

Calculating returns

Calculation plays a very important role when it comes to goal-based investments. You can either manually calculate or use one among the various calculators that are available online.

The below formula will help you calculate returns from SIP investment

FV = P [(1+i)^n-1]*(1+i)/i

Here, 

FV is the Future value or the amount you get at maturity.

P is the amount you invest 

i is the compounded rate of return

n is the Investment duration in months

r is the expected rate of return

How to earn Rs. 50 lakh in 5 years?

Before proceeding with the goal, it is important to note that making Rs. 50 lakh depends on the risk, amount of investment and market performance. Higher the risk, higher is the return over time.

Depending on the type of investor you are, there are different risk profiles associated with each type. Asset allocation is done basis your risk-taking capacity. Take a look at the examples below for each risk profile:

Type of InvestorRisk LevelExpected Returns
AggressiveHighestHigh
ModerateMediumMedium
ConservativeLowestLow
  1. Aggressive investor

As an aggressive investor, you are open to the highest level of risk, and thus, your funds are allocated to equity-related instruments. The key is to find a mutual fund that has returns to match your goal and invest based on calculations.

Let’s take the example of a fund that is predicted to give you 25% return annually for the next five years. The fund is considered aggressive but expected returns are high.

Type of fundPredicted annual return rateInvestment amount per monthTotal investmentExpected returnsCorpus in 5 years
Equity mutual fund25%Rs. 42,000Rs. 25,20,000Rs. 25,13,464Rs. 50,33,464

Here, calculations will show you that you will require an investment of Rs. 42,000 per month for 5 years with a notional return of 25% per annum to achieve a corpus of Rs. 50 lakh at the end of 5 years. It is important to note here that the past performance is not a guarantee of future performance of any fund or asset class.

In this case, the total amount of investment is Rs. 25 lakh that becomes Rs. 50 lakh in 5 years.

  1. Moderate investor

As a moderate investor, you are ready to take a medium level of risk, and thus, your funds are allocated to equity as well as debt instruments. Hybrid mutual funds tend to be the best vehicles to generate moderate returns.

Let’s take for example a hybrid fund that is predicted to give you 10% returns annually for the next five years.

Type of fundPredicted annual return rateInvestment amount per monthTotal investmentExpected returnsCorpus in 5 years
Hybrid mutual fund10%Rs. 64,500Rs. 38,70,000Rs. 11,66,314Rs. 50,36,314

In this scenario, if you invest Rs. 64,500 per month for five years, you could have a corpus of above Rs. 50 lakh.

Here, the total amount of investment is Rs. 38 lakh and 70 thousand that becomes Rs. 50 lakh in 5 years.

  1. Conservative investor

As a conservative investor, you are open to the lowest level of risk, and you do not have the appetite to bear a loss. Thus, the funds are allocated to only debt instruments. 

Let’s explain this with a debt based mutual fund.

Here, the fund is predicted to give you 6% returns annually for the next five years.

Type of fundPredicted annual return rateInvestment amount per monthTotal investmentExpected returnsCorpus in 5 years
Debt mutual fund6%Rs. 71,500Rs. 42,90,000Rs. 7,23,500Rs. 50,13,500

Here, at a 6% predicted annual returns, investing Rs. 71,500 could give you a corpus of around Rs.50 lakh in 5 years.

Making such long-term mutual fund investment plans requires sound knowledge of the market and an expert to guide you in your journey. This is where a financial advisor can help you with goal-based investment advice to know where, when, and how much to invest in and when to sell or swap your investments.

Find an advisor now and get started on your goal to make Rs. 50 lakh in 5 years!

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