You might have come across such advertisements on various social media platforms. Please note, all of these are fraudsters promising unbelievable returns through stock tips. I don't provide any calls or advisory services. I provide only educational content through my social media handles and through my website rachanaranade.com and rachanaranade.in Hey folks, CA Rachana Ranade here and I welcome you all to a very insightful video wherein we are going to discuss about how can you accumulate 2x wealth but With a small twist. What's up animation team?
Today you are on full fire. Focus, focus. Today we are going to understand about that small twist through which you can actually make much more money.
But before we move on to that concept, just a quick revision in like next 30 seconds. Some basics about lump sum and SIP. Okay, what is a lump sum? Here you are and you invest whatever money you have at one shot. That's nothing but lump sum investing.
But if you invest a specific amount of money at every specific date of every specific month that could be an example of SIP. I hope everyone is very clear about this. Still if you want to revise these concepts there is a separate video that I've done for this so please keep please watch this video after you complete this video.
So in the next section we are going to understand about that magic trick that you can use. Well now let's take an example so that you can understand a small twist that you have to do so that you can actually double your wealth okay. So let's take the example of Mr. Bandhu. I don't know who he is. Chandu brother?
Bandhu? Okay. So assume that Chandu Bandhu both graduated from the college at the same year they were toppers and they did some fantastic degree this that whatever okay and right after the college they got an annual package of 10 lakhs per annum okay but first we want to take the example only of Bandhu right so here you can see Bandhu's annual package right out of college 10 lakh rupees okay he has been following my channel and that was the reason why he knew the 50 30 20 rule and he said okay if 10 lakhs is my package I have to ensure that at least 2 lakhs is invested.
Okay. Out of 2 lakhs annual investment, what he decided was, let's say he was going to put 1,80,000 in mutual funds through an SIP. Okay. So yearly investment was going to be in mutual fund 1,80,000.
And if you were to do a monthly SIP for that, I'll just have to divide that with 12. Correct. So the amount, monthly amount would be 15,000 rupees in SIP. Simple till here. Okay. Now, if he did this regularly, religiously from this age of 22 till the age of 40, what could have happened to his portfolio?
For that, we'll check an excel sheet. All right. And for that, have a look at this. Okay.
So what are we saying? So his annual contribution, like we said, age is 22, yearly contribution is 1,80,000. Can we expect a return of 12%? Yes. Okay.
So if you see here, That is what we have been doing till the age of 41. Post 41, if you see here, he's not going to be contributing anything. Now it is just the magic of compounding that is going to happen. Okay, is he going to withdraw? No, he's just going to make ensure I mean, he's just going to make sure that whatever money he has invested just stays invested and money keeps on growing by itself. Okay.
So you can imagine 1,80,000 invested till the age of 41 from 22 to 41. so for 20 years would grow up to 12 crore 51 lakh 7000 and 16 rupees okay. Now that you have understood this now let us take so if you feel that wow this is a fantastic amount now we have to understand that small twist and twist has been done by Chandu okay. Chandu same package same amount of SIP but instead of an SIP he decided decided to go up with a step up SIP. Now for those who don't know what is a step up SIP, let me just quickly explain that.
See every year, whenever you're, let's say you're working somewhere, typically you'll get an annual increment, okay? Just because whenever we are doing some financial calculations, we have to take some assumptions, right? Then only I'll be able to tell you something. So let's say the annual increment assumption is 10%.
So if his annual increment is 10%, does it make sense that his amount of SIP remains the same? Answer is obviously no. Ideally, he should be increasing his investment also by another 10-10%. So, by whatever level his income goes up, by the same level, his investments should also go up.
Okay. So, basic maths. Like Bandhu did, Chandu is also going to start his SIP amount with how much? 15,000 rupees per month. Okay.
15,000, 15,000, 15,000. He did that for 12 months. First 12 months.
Next year, is he again going to continue with 15,000, 15,000, 15,000? Now, he's going to do a step up SIP. 10% increase. So, 10% of 15,000, he'll take it up to 16,500.
Okay. 16,500, 16,500 for another 12 months. After that, next year, he'll do 16,500 increase of 10%.
1650, he'll increase. and then he will increase the amount of SIP. I hope this is very clear.
So if that is done with a 10% step up SIP, let's see what happens. Okay, with a 10% SIP first year contribution 15,000 into 12, 1,80,000. Next year, 1,98,000. Next year, 2,17,000. Then 2,13,000, whatever I'm rounding it off.
Okay. He's also doing the same thing till he turns 41. So again, for next 20 years only. he is investing that amount but with a small twist of 10-10% increase okay.
If that is done what happens is that at the age of 42 let's see how much is the amount that he has you know accumulated that's 3 crore 29 lakh 52 thousand not not seven oh James Bond okay so 3 crore 29 lakhs okay. Now if I were to check the same point here it is 1 crore 62 lakh 68 thousand Are you understanding this? So, double of 1 crore 62, say a little bit more is 3 crore 29 lakh 52 thousand.
So, what is the small twist? Whatever is the percentage rise of income, same percentage, you should increase your investments, with that you will be able to double your money. Okay, so now what happens is that he has also done the same thing from 42, assume he has not invested anything, he has allowed the compounding effect to work as a magic for his portfolio, that final value now what I've done is let me show it up to you here. So final total value at retirement, Bandhu will have 1 crore, is it 1 crore? No, it's 12 crore, sorry.
12 crore, 51 lakhs, 7,016. But instead of 12 crore, 51 lakhs, Chandu has 25 crore, 33 lakhs, 99,807. So I hope you have understood with a small twist, how can you actually accumulate 2x of wealth and that is nothing but step up SIP.
Well, I hope you have understood very clearly about the magic of step-up SIP. But now let's... Chandu, you have directly come outside the excel sheet. Oh, you have a doubt?
About what? Insurance? You know, Chandu is my regular viewer. So he knows that like investments are really important, insurance is also equally important.
Chandu, I am sure you already have an insurance policy. If I may directly ask, how much? 1.5 crore, but wait.
First of all, we will have to check whether for his income level... 1.5 crore is enough or not but I just need one more data point from you Chandu what could be your average monthly expense 20,000 okay just have a seat Chandu I'll tell you afterwards okay so now let's calculate for Chandu who is earning whatever you know about that with a monthly expense of 20,000 is that amount actually enough for him or not and for that we are going to go to a calculator by ditto and for that have a look at this now I am just going to go to their website and I'm going to click on the tools term insurance calculator okay so how much was Chandu's age it was 22 we'll cover him up till 60 his average monthly expenses were 20,000 he didn't have any outstanding loans and I'm just going to click on calculate and what is his cover cover is 1.2 crores in fact Chandu has a little bit higher side cover which is absolutely okay okay now why did I show you up This calculator of Ditto, very important, it's free. So Chandu had his insurance, but just in case if you have still not taken out your term insurance policy, one of the go-to platforms can be Ditto.
Now question is obviously, why Ditto? Ditto has an amazing rating of 4.9 stars out of 5. They have 7,000 plus Google reviews. Now one more point that I love about Ditto is that they have a no-spam policy. So if you want to know which policy is the best suited for you, It's very simple.
You just have to book a free call with them. Once you click that, you can discuss, I mean, if you, let's say, if you want to go out with a term life insurance that we were discussing about, type whatever query you have around the term insurance, just click on select time. First, you'll have to select which date suits you. So let's say I've selected a specific date. You can also select a specific time and then hit confirm.
That's so easy to book a free call with them. And just in case, if you need to claim that amount, Ditto guys will help you with the claim process if you have taken out an insurance policy from them. So don't forget to check out the link in the description box below and in the pinned comment.
Alright moving on to the last but most important part of the video. First let's understand for Chandu income sorted, investment sorted, insurance also sorted. Okay but now what has happened? Some years have passed by, Chandu looks a little bit different.
Oh Chandu is now almost 30 years old. You might be like, how is Rachana looking the same? I always look young. Anyways.
Okay, so Chandu is 30 years old now. Now what has happened is that he has gotten some nice promotions as well. And now his annual package. Chandu, how much did you tell me your annual package was? Oh really?
You told me? It's 30 lakh rupees. What a thing. Chandu's income is sorted. And if you remember, he was also doing step-up SIPs.
So his investments are also sorted. But now the big question is, is his insurance sorted or not? Because whenever we are looking at a financial planning perspective, it's not only income, it's not only investments, but it is also insurance.
Three I. Income, investment, insurance. All three I are important. I am also important. Very boring. Anyways, so looking back to Chandu's example, now we have to understand at the age of 30, is his cover good enough or not?
And for that, it's very simple. Just go to the Ditto calculator. His age is what? Let's say 30. And at the age of 30, let us say we want his cover to be at monthly expenses. Chandu, how much should I put?
65,000. Okay, so 65,000 I put. I have some doubts.
I'm going to ask that. Wait. 65,000 and I'm just going to press calculate and oh the recommended cover for you is now 2.7 crores but Chandu I have a doubt he had told me his expenses to be somewhere around 20,000 now suddenly it has gone up to 65,000 what's wrong I mean even if I take 6% inflation it should have gone up to 45,000 oh okay I understand life-changing events because of which His expenses have increased and because of which ideally his insurance cover should have also increased.
But Chandu, big question. Have you increased your insurance cover? Watch ya Chandu. I thought you are very smart enough and you have not taken that insurance policy.
First things first, what do you have to do? You have to increase your insurance cover. Oh, very valid point he has. He has asked me that like he knew about step up SIPs because of which effortlessly. his investments increased, he is asking me whether there is something known as step-up insurance through which his insurance cover can also get increased without extra efforts.
Is there something like this? Answer is absolutely yes. And these are called as top-up plans.
Okay, top-up plans are great. Your cover can get, I mean your cover can keep on increasing, but you need to know two, three very important points for a top-up. Typically what happens is that top-ups are also capped. Okay.
So for example, your plan is to increase your cover by let us say 10% per year. Problem is that there are a lot of insurance policies where they will decide an ultimate capping amount beyond which your insurance cover will not go. Okay.
So let's say in his case, his original insurance amount was, his original amount of cover was 1.5 CR. New limit. which was required for him was 2.7 CR.
But assume that his insurance policy had a cap at 2.25 CR. In that case, would that have been a problem? Yes.
Second possibility or second problem that a lot of top up plans have is that whenever there are some life changing events, they could cap your increase in cover. Let's say the cap is at 50%. Okay, so original cover for Chandu was 1.5 CR. Let's say 50% cap would mean that 75 lakhs can get added to his insurance cover that will make it to 2 cr that's it but what was his new requirement it was 2.7 cr so could that also have been a problem answer is again yes third problem which is another big problem is let's say he wants to increase his cover by 10 percent every year so tell me logically his premiums should increase by also 10 percent every year let's say you want to increase his cover life cover by 15 percent every year his premiums should also go up by 15 percent every year but Does it happen? Answer is no.
In many of the policies, it does happen that by whatever percentage your amount of life cover goes up, your premiums go by go up by a higher percentage. Is that a pain? Answer is yes. Again, there could be a few exceptions.
But whatever policies we check, majority of the cases, the percentage increase in premium is a shade higher than the percentage increase in your life cover. But then Agreed, there are top of insurance policies. If that is not that beneficial for me is what you feel, in that case, what is the only solution left? Only solution is review your insurance policies manually. What could be the frequency for manual review?
Three years. Every three years, review your insurance policy, number one. Number two, also, if you feel that there is a life changing event between these three years, within these three years, then also you should review your policy. In Chandu's example, it was his marriage as a life-changing event birth of his daughter or son could have been a life-changing event for him okay so it's very important that you also review your insurance policy after any life-changing event has happened so the final question that you could have right now is you have also understood when to review but the final question is Which insurance policy could you buy?
Okay, for that, you have Ditto. Check out the link in the description box. They'll suggest you which policy can be good for you. But if you have a basic doubt, can I go ahead with the same policy?
Yes. So whichever insurance company you have for your life insurance policy, you can take that same policy also. You can have a different policy with the same insurer also.
And if you want, no, I want to have an insurance policy with a different insurer. that is also possible. So what did I say?
Same policy, same insurer, possible. Different policy, same insurer, possible. Different policy, different insurer, possible. Do whatever you want to do, but ensure that your life cover is adequate.
I hope you have found a lot of value in today's video. And as I told you, three I, very important, income, investment, insurance. So don't forget to insure yourself well.
If you found out this value, I mean, if you found out a lot of value in today's video, Don't forget to share this video with your friends. Don't forget to smash the like button. I hope you enjoyed this one.
Till then take care. Jai Hind and bye bye.