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Hello everyone!

Recently someone asked me the below question on Quora, hope you find the answer interesting.

How can one make an investment of 25 lakhs and make it one crore within 4-5 years?

Before answering this question. Let us first understand what is CAGR?

Compound Annual Growth Rate (CAGR) is a measure used to determine the average annual growth rate of an investment or business over a specific period of time. It represents the rate at which an initial investment or value grows if it compounds over multiple years.

In simpler terms, CAGR provides a way to understand how much an investment has grown or declined on an average yearly basis, considering the effect of compounding. It smoothens out the fluctuations and gives a consistent annual growth rate, making it easier to compare different investments over various time frames. CAGR is often used to assess the performance of investments, businesses, and financial products.

So let’s calculate to know, how much would be the CAGR if I want to convert 25 lakhs to one crore within 4–5- years.

We can use the formula for CAGR:

CAGR = (Ending Value / Beginning Value) ^ (1 / Number of Years) – 1

In this case:

Beginning Value (BV) = 25 lakhs = 25,00,000

Ending Value (EV) = 1 crore = 1,00,00,000

Number of Years (N) = 4 or 5 years (you mentioned both periods, so we will calculate for both)

Let’s calculate the CAGR for both scenarios:

For 4 years: CAGR = (1,00,00,000 / 25,00,000) ^ (1 / 4) – 1 CAGR ≈ (4) ^ (0.25) – 1 CAGR ≈ 1.186 – 1 CAGR ≈ 0.4142 or 41.42%

For 5 years: CAGR = (1,00,00,000 / 25,00,000) ^ (1 / 5) – 1 CAGR ≈ (4) ^ (0.2) – 1 CAGR ≈ 1.1487 – 1 CAGR ≈ 0.3195 or 31.95%

To turn 25 lakhs into 1 crore in 4 years, you would need an approximate CAGR of 41.42%. To achieve the same result in 5 years, you would need an approximate CAGR of 31.95%.

So now to answer your question, after understanding the above concepts:

Turning an investment of 25 lakhs into one crore within 4-5 years is a high-risk and ambitious goal. It’s important to understand that achieving such high returns within such a short timeframe typically involves taking on substantial risk. There are no guaranteed ways to achieve this level of growth, and it’s crucial to be cautious and realistic in your investment approach. Here are some potential strategies, but remember that these carry significant risks and may not always be successful:

  1. High-Risk Investments: High-risk investments like individual stocks, speculative assets, or cryptocurrency might offer significant returns in a short period. However, they also come with a high chance of loss, and it’s essential to be prepared for the possibility of losing a substantial portion of your capital.
  2. Entrepreneurship: Starting a successful business or investing in a high-potential startup could potentially yield significant returns. However, entrepreneurship involves inherent risks, and success is not guaranteed.
  3. Real Estate: Investing in real estate can lead to substantial capital appreciation if you buy properties in high-growth areas or during market upswings. However, real estate markets can be volatile, and property investments may require significant initial capital and ongoing maintenance costs.
  4. Leveraged Investments: Borrowing money to invest (leveraging) might magnify potential gains, but it also amplifies losses. This approach can be extremely risky and is not recommended for inexperienced investors.
  5. Mutual Funds and Equity Investments: Diversified mutual funds and equity investments in well-established companies may offer higher returns over the long term, but it’s unrealistic to expect such exponential growth in a short period without taking a substantial risk.
  6. Consult a Financial Advisor: Given the significant risks involved in trying to multiply your investment rapidly, it’s essential to seek guidance from a qualified financial advisor. They can help you understand the risks, formulate a realistic investment plan, and align it with your financial goals.

Remember that attempting to achieve extremely high returns in a short time frame involves considerable risk and may not be suitable for everyone. Always be cautious and mindful of the potential downsides, and never invest more than you can afford to lose. Long-term, well-diversified investment strategies are generally more stable and have a higher likelihood of achieving sustainable growth.

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