What Will Be The Value Of Rs 1 Crore After 20 Years

What Will Be The Value Of Rs 1 Crore After 20 Years

Financial planning is crucial for understanding how inflation impacts the value of ₹1 crore over 20 years, ensuring sustainable wealth growth.

Written by : Shipra Chaudhary

Reviewed by : Jasmeet Bedi

Jasmeet Bedi

2024-09-02

873 Views

8 minutes read

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You only have two things to worry about with wealth – inflation and taxes. Inflation reduces the value of your wealth over time. You can also call it the erosion of value as taxes impede the growth of this money. So, for example, if you have ₹ one crore today, invested at 5% p.a. where average inflation is also 5% p.a. and the tax rate is 20%, the following will happen:

  1. ₹1 crore will erode at a rate of 1.43% p.a.
  2. Value of ₹1 Crore in 20 years will be ₹ 2 crore in your account
  3. Real value, after adjusting for inflation (also called purchasing power) of today’s ₹1 crore will be equal to ₹75 lakhs in 20 years

If you want to get a first-hand experience of inflation, think of your favorite item that you purchased 15 years ago. How much did it cost then? How much does the same item cost today?

Table of Content

Value of ₹1 crore in Different Investments after 20 Years
 

AssetsInvestment Value*Real (inflation-adjusted)*
Mutual Funds Equity8.4 Crores5.9 Crores
Real Estate7.2 Crores5.1 Crores
Stock Market6.6 Crores4.5 Crores
Term Deposit4.1 Crores2.9 Crores
Gold3.7 Crores2.6 Crores
Savings Account2.1 Crores1.5 Crores

* Based on return and inflation estimates in the 10 yr. avg. return table

Learn why should you consider inflation while planning your retirement?

In a high-growth economy like ours, interest on savings has been 3.5% to 6% p.a., while inflation averages 4% to 5% over 20 years. Even if you do not pay tax on the interest you receive in this deposit, your wealth in savings continues to erode.

Did you know?

India's retail inflation eased to 4.75% in May’24 from 4.83% in April, highlighting the importance of monitoring inflation trends for financial planning.

- Forbes

 

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How to Beat Inflation & Taxes?

You need to invest for a longer time. This means you need to allocate your money to long-term investments. Long-term investments offer you the following trade-off:

ProsCons
  • Tax saving, postponing, exemption 
    Higher rate of return

  • Lower liquidity

  • Higher risk

Think of long-term investments like planting a fruit tree. If you wait long enough, you stand to gain more, but you also face more risk because of multiple factors. You can try minimising the risk and increasing your yield.

Similarly, with long-term investments, you try to counter or hedge against the cons and maximise advantages. Here’s how:

  • Know your short and long-term goals
  • Diversify your investments
  • Use the SIP (Systematic Investment Plan) mode of investment in volatile assets, like equity and Gold
  • Keep an eye for EEE (exempt, exempt, exempt) investments
  • Most investors don’t start with Rs 1 core in their kitties. But, most do have a said or unsaid goal of building a Rs 1 crore corpus. So, how soon can you get to this huge milestone?
Assets10 Years Avg. Annual Return*
Mutual Funds Equity11.2%
Real Estate10.4%
Stock Market9.7%
Term Deposit7.3%
Gold6.7%
Savings Account3.8%


** by July 2021

Based on these historical returns, if you want to build a corpus of ₹1 crore, you will need the following years, depending on your investment capacity:

 Years to Build Rs 1 Crore with Monthly Investment of…
(₹ Per Month)10,00020,00030,00040,00050,000
Equity Mutual Funds211613119
Real Estate2216131110
Stock Market2317141110
Term Deposit2719151311
Gold2820161311
Savings Account3825191513


So, if you invest in equity mutual funds, you will have a corpus of ₹1 crore, in 21 years with an investment of ₹10,000 p.m. The same will take just 9 years if you invest ₹50,000 p.m. in equity mutual funds, and so on.

How To Start Building Wealth?

The initial phase of your life should focus on generating wealth because that is when you will have the maximum risk appetite. You must gradually move into wealth conservation mode as you inch towards retirement. The last phase is when you live off your savings, and this is called the distribution mode.

Factoring in taxes is essential when planning investments. Investing in financial instruments that give tax exemption on investment and/or maturity is ideal. The following investments are popular for their tax savings and above-inflation returns:

       Public Provident Fund (PPF):

  • Tax-free maturity and growth

  • Fixed returns

  • 15 years minimum investment tenure

  • Partial withdrawals after five years

  • Invest up to ₹1.5 lakhs a year

    Unit Linked Insurance Plans (ULIPs): 

  • Tax-free maturity and growth if annual investment remains below ₹2.5 lakhs

  • Market-linked returns

  • Portfolio investment

  • Bonus additions

  • Life coverage

  • Minimum investment period of five years

  • Partial withdrawals are allowed after five years of investment

    Equity Mutual Funds:

  • Most flexible investments

  • Long-term capital gains are exempt from tax up to ₹1 Lakh.

Growth, Preservation & Distribution of Wealth with ULIP

A ULIP is an investment plan that offers you a choice of investing in equity, debt, or a combination of both. You can also change the portfolio mix depending on your risk appetite. These two features make ULIPs an ideal choice for your long-term goals. 

ULIP plans from Canara HSBC Life Insurance, allow you to start investing any time after 18 years of age and continue up to 99. Such long investment tenure allows you to build, grow and distribute wealth with a single investment.

Whether you want to collect ₹1 crore or more, ULIPs like Invest 4G are equipped with a range of features you can exploit. Although the corpus may seem large today, its value will be less than ₹2 crore 20 years later.

So, invest for the long-term, invest in equity and, as far as possible make sure your investments don’t make you pay higher taxes every year. ULIP helps you avoid tax on your invested money completely.

Wrapping Up

The value of ₹1 crore today will significantly diminish over the next 20 years due to the effects of inflation and taxes. To combat this erosion, investing in long-term instruments that offer higher returns and tax benefits is essential. Strategies such as diversifying your investments, using Systematic Investment Plans (SIPs), and opting for tax-efficient options like Public Provident Funds (PPF), Unit Linked Insurance Plans (ULIPs), and equity mutual funds can help you build and preserve wealth. 

Glossary

  • Inflation: A gradual rise in prices that reduces the buying power of money over time.
  • Tax Exemption: A benefit allowing certain investments or income to avoid taxation, lowering overall tax obligations.
  • Systematic Investment Plan: A strategy where a fixed amount is regularly invested in a mutual fund or other financial instrument.
  • Unit Linked Insurance Plan: A financial product combining investment and insurance, offering equity, debt, or mixed investments with insurance coverage.
  • Real Value: The adjusted value of money or investments considering inflation, indicating their purchasing power over time.
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FAQs

If we project a 5% inflation rate, the purchasing power of ₹1 crore will decrease significantly over time. After 20 years, it would roughly equate to ₹37 lakh, indicating a substantial erosion in real value due to inflation.

To calculate the value of money after 20 years, you typically need to consider factors like the initial amount, the expected inflation rate, and any potential returns from investments. 

Here's a basic formula: Future Value=Present Value×(1+Inflation Rate) n

where n= number of years. 

If you have ₹1 crore today and the current inflation rate is 5%, according to the rule of 70, your savings will lose half their value in approximately 14 years. This means that ₹1 crore today will be equivalent to about ₹50 lakh in 14 years due to inflation.

After 30 years, considering an average inflation rate of 5%, the purchasing power of 1 crore will be significantly reduced. Due to the eroding effect of inflation over time, it would approximate around ₹23 lakhs in today's terms.

After 40 years, ₹1 crore will likely have purchasing power significantly lower than today's, approximately ₹14.2 lakhs.

After 45 years, assuming an average inflation rate of 5% per year, the purchasing power of ₹1 crore will be reduced to approximately ₹11.46 lakhs in today's terms.