Nifty 50 CAGR for 10, 20, 30 years can be calculated.

Do remember, you are about to do it for the future.

Always remember, we cannot predict the future accurately.

What is the formula for the CAGR? …

Compounded Annuilized Grate Rate formulae =      (future value/present value)^ (1/number of years)-1.

In addition, in a normal calculator, you cannot calculate its value.

and you need Microsoft Excel or a scientific calculator.

We know that nifty 50 is trading at 24000 levels.

Hence, the present value in the above formula will be PV = 24000.

In addition, we would like to calculate CAGr after 10 years.

So, the number of years N in the forumulae will be N = 10.

Now, we need the future value of the index.

Here, without any assumptions, we will not get the index future value.

Read this article to calculate the Nifty future value after 10 years.

What will be the Nifty 50 future value after 10 years?…

We need some more existing data of nifty 50 and also some assumptions for caculating the future value of the index.

present P/E of nifty is 22.12.

So, it is very clear that the index is trading 22.12 times extra to the earnings of the index.

By deviding present nifty value with 22.12, we will get present earnings of nifty.

So, Present earnings of the index = 24000/ 22.12 = 1084.991

Let’s calculate the future value of Nifty 50 Now…

Now, we need some more assumptions for calculating index FV.

1. Earnings growth rate, i.e., R = 10% (assuming 10% earnings growth).
2. Number of years.( 10 years)

Future value of the index after 10 years = 1084*(1+10%)^10 = 2814.187.

Here, the above value is earnings after 10 years.

But we all know Nifty always trades some multiples extra or lower to its earnings.

Let’s assume that the index is trading 10 times extra to its earnings.

Then nifty 50 value after 10 years will be 28142.11

Now, the above value will be FV for calculating CAGr of the index.

Let’s calculate Nifty 50 CAGR now…

Now, we have below values in our hands.

Present value of the index Pv = 24000.

Future value of the index   FV =  28142.11

Number of years                 N =     10

So, CAGR of nifty 50             =  (28142.11/24000)^10     =  1.6%.

What will be the nifty 50 if earnings growth is 15%?…

By keeping all the values above constant, if we change the earnings growth rate to 15%,.

Now, we have below values in our hands.

Present value of the index Pv = 24000.

Future value of the index   FV =  43894

Number of years                 N =     10

So, CAGR of nifty 50             =  (43894/24000)^10     =  6.22%.

Now, you can see that if earnings growth rate is just 10%, The cagr for the index coming around 1.6%

You will get a heart attack if that happens.

Because present bank FD interest rates are more than 6%.

But you are getting 1.6% as a CAGR after taking risk by investing in nifty 50.

One more thing: if the earnings of the index are 15%, by all other values constant, the CAGR is coming around 6.22%.

This time, the CAGR value is 6.22%.

Which is somewhere near to the bank fd interest rate.

But still not sufficient for the kind of risk you are taking by investing in nifty 50.

If you assume a higher earnings growth rate, you will get a higher CAGR value in the calculation.

But that’s not a good idea.

Because calculator work is to give an answer.

it does not know whether that will not happen or not and the risks involved in that investment.

What are the risks you should mind while investing in Nifty 50?

While driving a bike, you know accident risk will be there.

You can decrease the risk by driving carefully, wearing a helmet, etc.

1. Earnings growth rate. Like the bike example, earnings growth rate is not in your hands. In addition, it depends on the economic growth. i.e., in many other people, including you in the country.

That does not mean there will be no earnings growth. You should assume a low and reasonable earnings growth rate.

And the 10% earnings growth rate assumption is a reasonable one, not a speculation.

2) Multiples to earnings nifty will be trading…

This is also not in your hands.

We do not know how many times extra investors are willing to pay for the earnings of the index.

And 10 times multiple to the inde is a reasonable one.

But Nifty 50 CaGr is low. What to do?…

We learnt that we need a higher earnings growth rate and higher multiples to the earnings for the nifty to grow much higher now.

In order to get a higher cagr.

But that will be too risky.

Because suddenly, when we need money, the earnings growth rate can suddenly come down.

As a result of that, investor sentiment may go down, and they may not be interested in buying nifty at higher multiples to the earnings.

If that happens, your cagr will automatically come down drastically.

Sometimes worse than the bank FD rate.

What are the solutions? …

In all these 10 years, Nifty may have witnessed many little ups and downs.

You know that we will get profit by buying low and selling at high only.

In investment in nifty, the same applies.

For doing that, you need a proper asset allocation.

Instead of investing 100% in nifty 50, you need to follow an asset allocation for reducing the risk in investing nifty.

If you do so, chances of positive CagR more than bank FD in 10 years will increase, in spite of nifty not growing enough from present levels.

Finally, it is very clear that after 10 years, there is no guarantee that you will get a huge profit from a nifty 50 investment.

In addition, you may get a negative CAGr if there is a huge panic in the market if you don’t follow asset allocation.

and market return is not in your hand; asset allocation is in your hand, like yourself driving a bike carefully wearing a helmet.

 

Read this article Nifty 50—is it safe to invest now?

Also read the article: “Debt Funds—All funds—all you need to know.

And read the article, Why you should not take one crore term insurance?

Also, read Silly mistakes to be avoided while doing investments?…

And read, How much life insurance actually do you need to take? …

Also read about Human Life Value in life insurance…

And read an article about the market up-and-down capture ratio…

Also read about the Nifty 50 levels future prediction: How to do?…

And read about 6 asset allocation strategies. All you need to know…

Also read about Fixed Asset allocation…

And read about Best mutual funds to invest…