How an investment of Rs.10000 grew to Rs.741 Crores in 39 years

WiproNote: This article was originally published in April 2014 and has been updated with the latest numbers as of 2019.

If I had the technology to send a message back in time, I would tell my father in 1980 to “Use Rs.10,000 to buy 100 shares of Wipro as a one-time investment and never sell it for the next 30-35 years.” If he had done that his investment would now be worth about Rs.741 crores. Yes, you read that right. Crores, not thousands or lakhs.

This is one of the common examples given when people come into investing in shares in India. Almost every Indian blog about investing in stock markets give this example and I also post this here as requested by a reader.  A lot of people think that it is a lie and don’t believe it, but it is possible and there are numbers to prove it.

Rs.10,000 to Rs.741 Crores

Let’s just assume that you bought 100 shares of Wipro each at a face value of Rs.100 in the year 1980. Total investment: Rs.10,000. You don’t touch it at all, no profit booking or buying more shares. Occasionally companies provide benefits to its shareholders by way of corporate actions. They could provide bonus shares for shares that you hold, they could do a stock split where a high face value share would be broken down into smaller face value shares but the number of shares increases proportionately, etc.

Wipro has done various such bonuses and stock splits in its history of 1980-2017. Lets now see the different corporate actions and how the number of stocks would’ve grown.

Wipro Investment growth
Year Action Number of Shares Face Value
1980 Initial Investment 100 Rs. 100
1981 1:1 Bonus 200 Rs. 100
1985 1:1 Bonus 400 Rs. 100
1986 Stock split to FV Rs.10 4,000 Rs. 10
1987 1:1 Bonus 8,000 Rs. 10
1989 1:1 Bonus 16,000 Rs. 10
1992 1:1 Bonus 32,000 Rs. 10
1995 1:1 Bonus 64,000 Rs. 10
1997 2:1 Bonus 1,92,000 Rs. 10
1999 Stock split to FV Rs.2 9,60,000 Rs. 2
2004 2:1 Bonus 28,80,000 Rs. 2
2005 1:1 Bonus 57,60,000 Rs. 2
2010 2:3 Bonus 96,00,000 Rs. 2
2017 1:1 Bonus 1,92,00,000 Rs. 2

After the year 2010, there were no more bonuses or stock splits. But with just that initial investment of Rs.10,000 (100 shares) you now would end up with 1,92,00,000 shares of the company because of all the stock splits and bonus shares. The current stock price of Wipro is about Rs.386 per share, as of 26 February, 2019.

Rs.386 × 1,92,00,000 = Rs.741,12,00,000 or about Rs.741 crores. That is a CAGR (Compound Annual Growth Rate) of 41.42%. Does any of your bank FD give you 41% annual interest rate? It was all possible because of the free shares that the company gave to its shareholders as an incentive for investing in their company. If you immediately needed to liquidate this entire holding today (urgent need for >Rs.700 crores?), you can do it and you would have to pay a very small long term capital gains tax on it (which was recently introduced).

How about an additional yearly payout of Rs.1.92 crores?

If you thought that Rs.741 crores out of a meager investment of Rs.10,000 were unbelievable, here comes another shocker. Every year the company announces dividends from its operating profits for its shareholders. As a shareholder, you would also get this benefit for how many ever stocks you hold.

For example, the last year 2018, the company announced Re.1 per share as dividend. So you get back Rs.1.92 crores just for holding the shares. Until recently dividends were also not taxed. But now any aggregate dividend above Rs.10 lakhs is taxed at 10%.

For a comparison, just calculate your (or your dad’s) current salary per annum and imagine getting a crore every year as additional income. How does this Rs.10000 investment compare to all the other money invested in other products like real estate or gold? No other investment would’ve given you such returns and dividends every year. If only my dad had the surplus money to invest in this.

Has anybody really done this? Can I go buy Wipro now?

As the saying goes “hindsight is 20/20”, we can calculate all this only after the company has grown from selling vegetable oils, soaps to becoming an IT major. Had everyone known that this cooking oil company would give such returns in 1980, everyone would have invested in this and become billionaires. Also, the shares wouldn’t have been listed on any exchange in 1980 and you would have had to invest privately into the company. Buying Wipro now wouldn’t give you the same returns as the company is already grown to such proportions and such a large-cap stock giving multi-fold returns is very hard.

How can I get returns like this?

There have been numerous such companies that have given great returns to investors, like Reliance, Titan, Dr. Reddy Labs, etc. No one can predict which company would grow to such a huge level before 30 years. Remember, for every story like Wipro, there are thousands of companies which has eroded investors wealth and become penny stocks. Investing in equities alone isn’t enough, investing in the right company at the right time is even more important.

Even if someone invested in the best company in the world, its basic human psychology to book profits when the stock prices increase so many folds. Some investors don’t feel comfortable even for a 50% increase in their investment. No one would have the patience to hold such a stock when he sees how volatile the market is in the short-term.

If you really want such phenomenal returns, you would have to do a lot of fundamental research, do your due diligence on the company and invest in it when it’s in the early stages. Most important of all is, staying invested in the company for the really long-term to reap the entire benefits.

Update:

  1. I have written another article which has 6 stocks that have been multibaggers – and how I got a 23x return on my investment on one of those stocks.
  2. Read this if you want to understand about Bonus vs stock split and other corporate actions.

Other Tax Deductions under Section 80C

The past few articles we have seen how we can invest your money and also save tax under 80C using ELSS Mutual Funds, PPF, EPF, NPS and also Life Insurance. But 80C isn’t limited to just those schemes.

There are a few investment options which also enjoy 80C deductions.

Investment in House

Lets say you buy a house and like most of us middle class people, you will take out a home loan to buy your house. There are two ways you can get benefits under 80C.

Stamp Duty paid for Registration:

Registering a house involves paying Stamp Duty to the government. The stamp duty you pay and the amount paid for the registration of the documents of your house can be claimed as a deduction under 80C on the financial year when you purchase the house.

Home Loan Principal repayment

Home Loan means paying EMIs. Every month you are paying a fixed amount of money which go into servicing your loan. Your monthly payment has both principal component and interest component. In a financial year, all the money you paid back as principal enjoys deduction under 80C.
Remember in the initial few years of the loan, the principal component will be a very small amount vs interest paid. But the interest component can also help to significantly save your taxes, but that is under Section 24.

National Savings Certificate

National Savings Certificates or popularly called NSC is a savings bond and is part of the postal savings system. Anyone can buy a NSC from a post office in their own name or in the name of a minor. They have a maturity of five or ten years. The interest earned is liable to tax (taxable under your tax slabs). But since the interest is also reinvested, that amount can also be eligible for tax deduction under 80C.

Infrastructure Bonds

These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. Since this investment is helpful to build and develop the infrastructure of the country, you can claim a tax deduction under 80C.

Sukanya Samriddi Account

This is a new savings account introduced by the government couple of years back. This is applicable specifically for parents of girl child. This account can be opened if you have a girl child from the day of birth of the child, till she attains the age of 10 years.

The minimum deposit is Rs.1000 and maximum of Rs.1.5 lakh can be deposited in one financial year. Interest earned is fully tax exempt. The account can be closed after the girl has completed 21 years of age. Normal Premature closure will be allowed after completion of 18 years provided that girl is married.

Tax Savings Fixed Deposits

Banks provide a special type of fixed deposit scheme which has a lock-in of 5 years. The money you invest is tax exempt, but the interest earned is taxable at your tax slabs.

Senior Citizen Savings Scheme

This is a special scheme for senior citizens and this is available for anyone who has completed 60 years of age. There are also other age criteria for people who have retired under Voluntary Retirement Scheme or Defense personal.

The maturity period is 5 years and any number of accounts can be opened. The important difference between this and tax savings FD is the interest earned is credited back into your savings account every quarter instead of reinvesting back.
After maturity, one can also extend it further by three years.

Children’s Education Expenses

If you have children, any money you spend on their education like school or college fees can be claimed for tax deduction under 80C.

These are all the different possible tax deductions under 80C. Next article is about how to save tax on Medical Insurances under section 80D.

Deductions under 80C: PPF vs EPF vs NPS

We have seen a few tax savings investments in the previous articles. In this article, let us compare three tax savings schemes under 80C that are pretty long term – PPF vs EPF vs NPS

Before we look at the different schemes, lets understand the different events that can be taxed or exempted.

Exempt, Exempt, Exempt – also called EEE. The first E indicates that the original investment enjoys tax exemption. The second E is for the interest earned is tax exempt and the third E denotes that the total income earned on maturity is also tax exempted.
Right now only PPF and EPF enjoys EEE taxation.

The other possibilities are ETE and EET.
ETE means the interest you earn is taxable. Example: tax saving fixed deposits and NSC.
EET means the maturity amount or withdrawals are taxed. Example: Pension plans, and National Pension Schemes.

Public Provident Fund

PPF is a tax free savings scheme provided by the government. They have a minimum maturity of 15 years. PPF belong to the special type of investment which enjoys EEE taxation. Any money that you invest (upto 1.5lakhs per year) enjoys tax deductions, any interest you earn is also tax exempted and on maturity how much ever you get back is also tax exempted.
In the rare event of a person declares bankrupty, the debtors can never touch your money in PPF. So the government protects the people of their life savings.

The thing that I don’t like about PPF is that the interest rate is calculated on an annual basis and the interest rate also keeps changing.

But this is a good investment/savings option for people who don’t have Employees’ Provident Fund.

Employees’ Provident Fund

EPF is similar to PPF, but is managed by the EPFO (Employees’ Provident Fund Organisation). It is a way to make sure that employees of private organisations are saving some money from their income. If you have an EPF account and work for a company which falls under the EPF rules, a small portion of your salary goes to your EPF account.
12% of your basic salary is deducted by your employer and deposited in your EPF account. The employer also makes an equal contribution.
EPFs also follows the EEE tax exemption rules and has similar interest rates as PPF, in fact usually higher rates too.

If you are an employee, check with your payroll department or HR to find out how much money is being deposited in your EPF account every month and that will help you in planning your 80C better.

National Pension Scheme

NPS is a pension scheme that has been started by the Indian Government to allow people working in unorganised sector and other working professionals to have a pension after retirement. This also falls under 80C and you can invest upto Rs.1.5 lakhs. But there is also an additional section 80CCD(1B) which allows an extra Rs.50,000 to be invested.

NPS has different schemes and tiers depending upon the risk profile of the subscriber. The money you save under NPS is managed by a fund manager and the fund management charges are the lowest ever compared to any other mutual fund. But the exposure in equity is capped to 50% only.

The best parts of NPS are the very low fund management charges and the extra Rs.50,000 on top of the Rs.1.5 lakh deduction.

But the bad part of it is it belongs to the EET type of investment. That means the money on maturity is taxable. And you also don’t get to withdraw all your money on maturity. Only a partial withdrawal is allowed, and you can get regular monthly pensions.

Which to choose?

It depends.
If you are not employed, EPFs are not an option.
If you want that extra Rs.50,000 savings, but don’t mind the really long lock in and monthly pensions, NPS is a good option.
If you want a plain simple tax savings then PPF is good enough.

Personally, I have an PPF account that I keep putting a small amount in every year. And put the remaining money in a ELSS fund.

Deductions under 80C: ELSS Mutual Funds

This is part 3 of the series about Tax Savings and I will be explaining in detail about one of my favourite tax savings investment – ELSS Funds. Click here for the previous parts about tax slabs and Life Insurance.

ELSS Funds

ELSS stands for Equity Linked Savings Scheme and it is just a fancy name for a equity mutual fund which has a lock-in period of 3 years and investments under which you can claim tax savings under 80C.

Now that is a lot to take in that previous line – lets break it down.

Equity Mutual Fund: You invest your money along with thousands of others to collect a huge corpus of fund. There is a dedicated professional who handles all your money and invests it in different stocks/bonds. He is called the Fund Manager. For this he charges a small percentage per year as fund management fees (also called expense ratio). Equity Mutual Funds are the most efficient investments which can also beat inflation.

Lock-In period: Any normal equity fund doesn’t have any lock-in period. Which means you can put your money today and choose to take it out in a few days. There might be some charge, but your money isn’t locked in.

But ELSS mutual funds have a lock-in period of 3 years. If you invest your money on Jan 1 of 2017, you will be able to take it out only on Jan 2 of 2020. Having a lock-in makes sure that you are invested for the long time which is very important for equity funds.

Usually all tax savings investments have a lock-in period. ELSS funds has the shorted lock-in period of 3 years.

Tax Savings under 80C: Investment made in ELSS funds are eligible for tax deductions under section 80C. You can invest any amount in ELSS funds, but a maximum of Rs.1.5 lakhs will be eligible for 80C deduction.

So how does one invest in ELSS funds?

There are numerous fund houses which has a tax saver or ELSS fund. You have to first identify a fund which is good. Since your money is locked in for 3 years, choosing a good fund is important.

There are numerous websites which list mutual funds and one website that I use is Value Research Online. Go there and select all ELSS funds available and go through each of them. See how well it has performed over the past years.

  • Has the fund manager consistently beaten the benchmark?
  • How many years has the fund manager been managing the fund?
  • Is the expense ratio small enough?
  • You can also look at the portfolio of the fund to see if the companies it has invested in are diverse enough and well performing companies.

Always do SIP

Once you decide which fund to invest in (pick only one) start an SIP on the fund. Most mutual funds allow investing directly online through their website. If not, you would have to download and fill up the form and write out a cheque for the amount and send it to one of the investor centres.

It is important to start a monthly SIP so that your investment isn’t affected by the volatility of the market. Whether the market is up or down, you keep investing in it and let the investment take its own time to bear fruits.

Though ELSS are my favourite of the tax savings investments, it isn’t the only place where I invest. There are also other instruments which would be a good fit for your risk taking abilities. In the next part I will explain about those.

Deductions under 80C: Life Insurance

The first article under the Income Tax series was about Income Tax Slabs. Do go read it if you have difficulty calculating your taxes and the different slabs.

There are various sections under which we can claim tax deductions. And each has it’s own limits and uses. 80C is the most popular section under which people claim tax deductions. Even though I have written in brief about this section, it was in 2013 and a lot of things have changed since then.

Under this section 80C, Rs.1.5 Lakhs can be claimed for tax deductions. Money invested under this section enjoy tax deductions. They also have a long lock-in period attached to it.

There are other types of expenses that can also be claimed under 80 C and in this article I will explain in depth about what I consider to be the most important one – Life Insurance.

Life Insurance Policies are a must if you have dependents – spouse, children, parents, etc. It is double important if you have liabilities like home loan, car loan. The Insurance Policy makes sure that your dependents can maintain the same life style as they are currently enjoying even after your death.

There are lot of Insurance agents who sell policies without trying to mention the words “DEATH“. Death is the one certainty that can happen to anyone at any time. It is very important to not mince words and ensure that your dependents are well protected.

Life Insurance is needed for everyone who earns money in the family. Without their money, if you can’t lead the same lifestyle, then get that person insured.

  • If you are the primary bread winner, get insurance.
  • If your spouse also earns money, get insurance for him/her.
  • If your children are still in school or college – don’t get insurance for them.

There are many insurance providers who sell insurance policies in the name of Children Savings policy.
These are just emotional words to get your money.

When your child earns his own money, he can get himself insured. Till then, it is not needed.

The only difference is if you child earns the money in your family as an artiste and you are dependent on him/her, then you need to get them insured.

What Life Insurance Policy to buy?

Always buy a Term Insurance policy.
End of discussion.
Go on to the next section.

Ok. You are still here? Want to know why I said Term Insurance?

Lets see the dictionary definition of Insurance

Insurance
an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

See how the dictionary definition doesn’t have any word called investment or savings? Term insurance is the only true life insurance policy that strictly follows the dictionary definition.

You should never mix insurance and investment. Both are completely different and should remain separate. Since term insurance is just a pure insurance product, you get more value for your money.

How much Insurance do you need?

Generally speaking you should be insured for 10x to 12x your annual income + any liabilities (loans) you have.

So if your annual income is Rs.10 lakhs and you don’t have any home loan, get a term insurance for minimum 1 crore.

If you have a home loan of Rs.50 lakhs, up your term insurance to Rs.1.5 crores.

Which Term Insurance to choose?

There are many providers to choose from and it is easy to buy a term insurance online by spending less than 30 mins. All Insurance Providers are regulated by the IRDA, so you can choose any provider. So it makes sense to choose the provider who gives the lowest price and has the highest settlement ratio.

But you should make sure that you fill in your insurance form by yourself and fill it in truthfully. The premium you pay depends on your health conditions (smoker/diabetes/heart condition/etc). If you fill it in with wrong details, there will complications when the policy is claimed. And the only time the policy is going to get claimed is when you are not alive – leading to unnecessary complications for your near and dear.

So always fill in the form properly and get the mandatory medical test to avoid complications.

Now that you have covered your dependents for cases when you might not be alive and also gotten tax deductions for the premium paid, next is to invest the remaining money for your future and also get tax deductions for that.

The next article is about my most preferred tax efficient investing method – ELSS funds. Do give me your email address below and I will send it to you as soon as I publish.