A reader asks, “How much should I invest to achieve Rs. 1 Crore in five years?”. Assuming you are sure that Rs. 1 Crores is the right amount of money, factoring in inflation for your goal, the answer depends on how important the goal is.
If the goal deadline is non-negotiable, you “must”have the money ready in five years, then stay away from equity. If the goal is not crucial and can be postponed by a year or two, you can afford to take on a small amount of equity.
However, your experience with capital market investing also matters. If you have no experience or if you have only experienced bull markets, it is better to avoid equity. If you have seen both bull and bear markets (for a few years, not weeks!) then you can add about 25% equity.
We shall find out more using the freefincal robo advisor tool. Using an inflation of 10%, we find that to achive Rs. 1 Crore in five years with 100% fixed income needs a monthly investment of Rs. 1,39,463 (asssuming post-tax 6% return) or a lump sum (one-time investment) of Rs. 74,72,582.
Most people will say this is conservative. It is better to be conservative and err on the side of caution than expect high returns especially from fixed-income. Of course the robo advisor tool allows you to change the return expectation, but do tread with caution.
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The tool also allows you to change the asset allocation. The time frame is too short for a variable asset allocation like we do for retirement planning. So suppose we assume 25% equity and 75% fixed-income, the investment amount required would be a few percentage lower (not too much!)
So where should one invest?
(1) 100% fixed income
- FDs or RDs simple and best option for those with no experience with debt funds.
- Someone with experience and risk awareness can consider a fund like Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index Fund
- More risky option could be a corporate bond fund.
(2) 25% equity and 75% fixed income (approx)
- Add 25% of Nifty 50 index fund to 75% of any of the above options.
- Conservative hybrid fund with good quality bonds and not too much equity exposure.