We Indians get excited the moment we hear the word “crorepati”, don’t we? 🙂
It is a status symbol to have the “crorepati” label, and moreover who doesn’t want to bask in the glory of wealth? It was exactly this sentiment which was “exploited” (for TRPs) by the popular show “Kaun Banega Crorepati” started in June 2000, which not only drew crores of Indians glued to their television sets, but also rescued Amitabh Bachchan’s fading career.
Ever since the inception of the show, lakhs of ambitious Indians, young as well as old, have been burning the midnight oil to memorize answers to lakhs of questions, to prepare themselves to join the rat race of competing for the show. There are even coaching centres all over India to train aspirants on how to quickly memorize answers using a host of techniques including mnemonics, so that they can get selected for the show and “come out with flying colors” (i.e Become crorepatis). For example, one of the winners of the show had admitted that it took him 11 years of endless preparations & thousands of calls to finally get selected, and he fortunately won a crore rupees, which he is now using to setup coaching classes so that he can train more Indians to replicate his success.
There are lakhs of Indians who have been spending sleepless nights since June 2000 (for the last 16 years), still determined to make it to the show, answer all the questions and fulfill their dream of “Becoming a crorepati”.
But, is becoming crorepati really such a great achievement that people are willing to dedicate more than 15 years of speculative endless preparations for something which is no less than a gamble? (with a chance of 1 in million to make it to the show & a further 1 in million chance to answer all questions correctly in the show). If yes, then what if I told you that you are just 1 step away from becoming a crorepati, but you need not really go through all these pain & irrelevant preparations?
What if I told you that you that you can become a crorepati by just quitting smoking? That’s it. Nothing more, nothing less. Just quit smoking and you become a crorepati. I am not kidding. A lot has already been written about the harmful effects of smoking and I leave it for another day to explain those in detail, but today, I would like to discuss only about the financial part of quitting smoking.
(If you are not a smoker, then you are already saving the money which you would have otherwise spent on smoking and in the following paragraphs, you will know what you must do with the money you are saving)
Let’s rewind back to June 2000, when Amitabh Bachchan’s KBC show excited our sensory organs due to its “crorepati” keyword. A good branded cigarette would have cost around Rs 2 to Rs 3 back then. Typically, a chain smoker would smoke 1 or 2 cigarette packs (i.e 10 to 20 cigarettes) per day, depending on his workload, mood, tension, stress and other factors. For the sake of simplicity, let’s assume that a typical chain-smoker, in the year 2000, would smoke 15 cigarettes (just trying to be conservative, I personally know people who smoke more than 2 packs or 20 cigarettes a day), each cigarette costing Rs 3, and say around Rs 5 for chewing gums or polo mints to accompany the cigarettes, taking the total smoking cost per day to Rs 50.
What if Kumar was one such smoker who decided to quit smoking in June 2000, and systematically invested that money? Let’s say at the end of each day, Kumar would drop the Rs 50 which he saved on smoking, into a small collection box in his house. By doing it religiously day after day, by the end of the month, he would have 50*30 = Rs 1500 in the collection box.
This Rs 1500 would be invested into a reputed mutual fund through SIP (Systematic Investment Plan) on a monthly basis.
That’s it. In simple words, all that Kumar had to do was just quit smoking and invest that money into a mutual fund through SIP. So, what would he have achieved by doing it for the last 16 years? Let’s analyze. To begin with, let’s find out some of the top mutual funds which have returned great returns in the last 15 year time-frame. One of the most popular & reliable websites for research on historical performances of mutual funds is Value Research Online website which has an extensive database of all kinds of details a researcher would ask for. After entering an approximate long term 15 year time-period (between 2000-01 & 2014-15), following is the list we get.
You can verify it yourself by vising this link:
It says that “Reliance Growth Fund” had delivered a return rate of 33.80% CAGR (Compounded Annual Growth Rate). Let’s use that CAGR value with a SIP calculator to find out what Kumar would have achieved over these 16.5 years since June 2000 (i.e 188 months).
A typical SIP calculator would require the following inputs: Monthly investment, num of months and return rate.
In Kumar’s case, it would be as follows
Montly investment = Rs 1500
Number of months = 188 months
Rate of return = 33.80%
By entering these values, we get the following result which is captured as a screenshot.
Yes, Rs 1 crore it is!! Our Kumar who was a chain-smoker till June 2000, and was mesmerized by KBC and dreamt of becoming a crorepati, just quit smoking and now he is a crorepati!!
Those who are not very familiar with market trends & mutual fund insights might find this really surprising. Their obvious comment would be that 33.8% compounded rate of return over long term is “highly impossible” or even if a fund does give such return, it is just a “one-off” case. I understand that it sounds too good to be true, but we have the evidence right in front of us. In the above calculations, I have given all the relevant links so that you can verify the facts yourself. If Reliance Growth mutual fund returning 33.8% return is a “one-off” case, then how about the next one in the list, Franklin India Prima Fund which gave 33.23% return over 15 years, or HDFC Equity Fund which gave 30% return over 15 years? Sounds unbelievable, but it is factual, and it can be proven using any of these facts that anybody who just quit smoking and invested the cigarette savings into a popular fund, would have definitely become a crorepati in 15-17 years.
Anyway, past is past. Lakhs of Kumars could have fulfilled their dreams of becoming crorepatis by just quitting smoking, or setting aside some money equivalent to smoking expenditure, but we do not know how many really made use of these opportunities. But now it is year 2016. In the last 20-25 years, the growth was very high probably due to the liberalization & bold reforms in 1991 which led to boom of Indian economy.
This short video clip summarizes the transformation of Indian economy in early 90s:
Practically, such 30-35% CAGR might be difficult today, unless the present Govt unleashes aggressive reforms which can put India on a fast-track growth for the next 1-2 decades. Indeed, there has been a lot of optimism in the investor sentiment, with major institutions including World Bank & financial institutions like Morgan Stanley showering praises for our economic revival and eagerly waiting for the economy to take off in the next few months.
Having said that, let us assume conservative figures for our calculation now. If not 28-30%, we can definitely expect an average of 18-25% return rate (CAGR) on equity mutual funds for the next few years. How can you utilize this opportunity? Let’s say you are now a 22 year old smoker who smokes 15 cigarettes per day. Each cigarette costs Rs 10, which means you would be spending around Rs 5000 on smoking each month. What if you systematically invest till you are 40? (i.e For next 215 months)
Monthly investment = Rs 5000
Number of months = 215 months (45-22 = 18 years = 215 months)
Rate of return = 20%
Cool!! So, you can also become crorepati in 18 years just by giving up smoking. Instead of 20% CAGR, if you assume a more optimistic figure of 25% CAGR, then you can become crorepati within the next 15 years.
Now, for one last ultimate analysis. Assuming you are a 21 year old smoker now, and plan to retire by the age of 62. As we had already calculated, you would be spending Rs 5000 per month on smoking. What if you just quit smoking now and invest that Rs 5000 into an equity mutual fund through SIP, till your retirement. Although 20% return rate for the next 1 decade sounds very practical & maybe conservative, let’s just try to be a bit optimistic and assume that 20% will continue for the next 4 decades.
Monthly investment = Rs 5000
Number of months = 492 months (65-24 = 41 years = 492 months)
Rate of return = 20%
Can you believe it? It says Rs 100 Crores !!
Just imagine, if you are now a 21 year old smoker and quit smoking, and invest that money into SIP mutual fund, you will not only benefit immensely in terms of health, but you also make Rs 100 crore by the time you retire by doing nothing else extraordinary but just by quitting smoking & investing that saved amount systematically.
Note that we have not even considered inflation cost of cigarettes. All that we are assuming is that till your retirement, you would be saving Rs 5000 each month (Although we are sure cigarette costs will skyrocket in future). If you consider tobacco inflation as well, and reflect that increase in cigarette prices proportionately in your systematic investments, then by the time you retire, your kitty might have Rs 200 crore or even more!!
That is the power of systematic investment & compounding.
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