There is an organized way to become a dollar millionaire

Had you invested Rs10,000 in buying 100 shares of Wipro in 1980, do you know how much your money would be worth? Let us find out by just assuming that you held on to the shares and did nothing other than the corporate actions working on their own.

Apr 15, 2018 01:04 IST India Infoline News Service

If you are an equity investor and have been in the stock markets for some time, it is highly unlikely that you have not heard the story of how Wipro created wealth. Had you invested Rs10,000 in buying 100 shares of Wipro in 1980, do you know how much your money would be worth?

Let us find out by just assuming that you held on to the shares and did nothing other than the corporate actions working on their own.

Here is the interesting table:

Year

Bonus / Split

Ratio

Opening Shares

Closing Shares

1980

Initial Investment

N.A.

0

100

1981

Bonus Issue

1:1

100

200

1985

Bonus Issue

1:1

200

400

1986

Stock Split

100 to 10

400

4,000

1987

Bonus Issue

1:1

4,000

8,000

1989

Bonus Issue

1:1

8,000

16,000

1992

Bonus Issue

1:1

16,000

32,000

1995

Bonus Issue

1:1

32,000

64,000

1997

Bonus Issue

2:1

64,000

1,92,000

1999

Stock Split

10 to 2

1,92,000

9,60,000

2004

Bonus Issue

2:1

9,60,000

28,80,000

2005

Bonus Issue

1:1

28,80,000

57,60,000

2010

Bonus Issue

2:3

57,60,000

96,00,000

2017

Bonus Issue

1:1

96,00,000

1,92,00,000

Data Source: Wipro Filings

What the above table shows is that had you bought 100 shares of Wipro in 1980 by investing Rs10,000, it would be worth (hold your breath) Rs547cr. Yes you heard it right! An investment of Rs10,000 in 1980 in Wipro would be worth Rs547cr today. We are not even considering the impact of dividends you would have received along the way. Coming back to our question of a dollar millionaire, if we talk of accumulating Rs6.50cr at the current value, then we should have invested around Rs112 in Wipro in 1980. Since fractional shares are not possible, if you had bought 1 share of Wipro in 1980 you would be worth Rs5.47cr (little less than a dollar millionaire) and had you bought 2 shares of Wipro in 1980 you would be worth Rs10.94cr today (much better than a dollar millionaire). But, enough of Wipro and let us look at the future. Can we plan to become a dollar millionaire in the future without too much of volatility risk? Let us evaluate the equity mutual fund SIP approach. Using equity MF SIPs to become a dollar millionaire Most of us tend to be quite erratic in our monthly SIP investments. Did you know that saving just Rs20,000 per month in equity MF SIP earning 15% returns would be enough to make you a dollar millionaire in 25 years? Yes, your fund would be worth more than Rs6.50cr. All these are fairly reasonable assumptions. A SIP of Rs20,000 per month is not much to ask for. Similarly, 14-15% is what diversified funds do earn over a longer time frame. But what if you do not have so much time on hand and want to reach the target of million dollars faster. Then you need to increase your monthly allocation. The table below captures the gist of how much you need to save to achieve the million-dollar target in different time frames:

Target to Reach

Annual Yield of

In a period of

Monthly SIP Needed

Rs.6,50,00,000

15%

30 years

Rs.11,542

Rs.6,50,00,000

15%

25 years

Rs.23,580

Rs.6,50,00,000

15%

20 years

Rs.48,980

Rs.6,50,00,000

15%

15 years

Rs.1,05,457

Rs.6,50,00,000

15%

10 years

Rs.2,47,131

Rs.6,50,00,000

15%

5 years

Rs.7,44,200

Of course, the monthly SIP requirements start to appear ridiculous if you try to become a dollar millionaire in 5-10 years. But if you have a time frame of more than 20 years at your disposal, it is possible to legitimately plan to become a dollar millionaire with very limited risk.

Is there a golden rule to identify millionaire stocks like Wipro?

The great mathematician, Euclid, once said, “There is no royal road to geometry”. The same applies to identifying such multi-baggers. However, there are a few key pointers that you can use: Is the company fulfilling a new and emerging requirement of customers or is the company fulfilling the same need in a unique way? You need to focus on such disruptive companies.

Can the company actually translate its eyeballs and footfalls into real customers paying real money and generating real profits? That is the bottom-line and that is exactly where most disruptive ideas falter.

Is the company transparent and does it maintain highest standards of corporate governance? As Mr. Narayana Murthy put it eloquently, “When in doubt, disclose”. It is this transparency that builds investor confidence enabling companies to generate wealth over long periods of time.

Is the company very cautious about raising any kind of capital; be it debt or equity? This is what you must look for. Raising funds through equity dilutes earnings and debt adds to your financial risk. Conservatism in capital raising lies at the core of value creation.

If you think that the company you are investing in has the ability to sustain the above 4 factors, then you could have a great wealth creator in the offing. Otherwise, you can always fall back upon good old equity fund SIPs to become a dollar millionaire.

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