How small investment make up fortune !!

Small is Big !!!

After seeing the right hand side photo , you might think that what is this Ant photo doing in this article. Its just to give an idea about how powerful small things can become.

In tribal villages of Cameroon , when termites become danger for homes made of Wood, all their stored food stock (Millet’s) and growing crops, They bring 500-1000 Red fire ants , which defeats around more than 10 million termites with there power , strategy and unity. because Small is Big !!! . Lets go ahead with our story of the day after getting a hint on whats in the store for today.

One of my very good friend works in a finance company and earns around Rs 20,000 a month. Just graduated from college and found a decent job in Delhi , He lives a great life, movies with friends , eating out , smoking and boozing , Great Life … as he calls it.

He can give good competition to any smoker and occasional drinker. Eating out with friends is his hobby it seems. 2 jeans are must in every quarter because he can not see himself out of fashion!! . His mobile bill comes more than 2000 because phone is the only way to keep in touch with 10-15 “old” and “true” friends.

He never saved anything until I bombarded him with my lectures on “why he must start investing for his future” . With great effort he started investing 1500 per month in a Mutual fund i told about.

When i asked him what are his future goals, he said

* Retirement corpus of more than a crore when he is 60
* 40-50 lacs to open a restaurant
* 6-7 Lacs for a vacation in Europe after 10 years with his wife.

He was expecting a big laughter from my side and a disagreement that he was doing nothing but making unachievable dreams with a salary of Rs 20,000 per month, and a situation where he is finding saving 1500 per month a tough task.

To his surprise i told him that its not at all a difficult task considering he is ready to take some tough decisions which will be good for him from every angle.
He thought that my advice and plan for him will be tough , complex , full of jargon’s . He thought he will have to spare a day for understanding what i am going to suggest.

And here was my plan for him:

Quit Smoking and Drinking and cut your eating out and movies by Half, Limit the number of calls and duration of calls and make sure that he cuts the bills by 50% at least. IS THAT ALL !!! ?

I said YES , that is all he has to do and he has to do this systematically , with discipline for years. Because Small is Big !!!

Small things matter most , many things become our regular expenses which we can avoid and should avoid, and if saved and invested they can take care of our future financial goals.

Retirement : His retirement can be taken care by just investing the money which will be saved by quiting smoking. He spends more than Rs 60-70 per day or Rs 2000/month . If he invests this money in a Equity Diversified mutual fund through SIP per month , He can generate a corpus of

- 1.5 crores in 30 years considering a return of 15% CAGR
OR
- 2.9 crores in 30 years considering a return of 18% CAGR
OR
- 3 crores in 35 years considering a return of 15% CAGR
OR
- 7 crores in 35 years considering a return of 18% CAGR

Equities in long run gives excellent returns and 15-18% return can be expected from equities if the time horizon is 30-35 yrs , especially from Indian Markets.

Plan for Restaurant : His plan for opening a restaurant can easily be achieved by investing the money he can save by not drinking. He drinks once or twice a week and spends somewhere close to 300-400 a week on drinking.. Lets consider Rs 1000 for a month.

- Rs 1000 invested per month for 30 yrs at 15% return can generate a corpus of 70 Lacs.

For Vacation : He can also save around 1000 from is unnecessary telephone bills and 800-1000 from eating out and invest that money. Considering it around 2000 per month.

- Investment of Rs 2000 per month can generate 5.5 lacs in 10 yrs @15% CAGR
OR
around 7 lacs @18% CAGR.

I would be happy to read your comments or disagreement on any topic. Please leave a comment.


I would be happy to read your comments or disagreement on any topic. Please leave a comment.

Disclaimer : all the investments are considered to be in Equities for very long term. And equities have a track record of providing similar returns in long term. Like Sensex gave return of more than 17% CAGR in its 29 yrs. Equities outperform all the other asset class in long term.