Having a net worth of Rs 1 crore may sound like a big financial milestone. Still, as an investor, you must understand that it does not mean that you should keep the entire amount sitting in your bank account.
Keeping too much cash idle can mean missing out on potential returns. With that much money, you may think that it is safe to keep it in the bank, but inflation can gradually erase its value without you realising. At the same time, keeping too little liquid cash can leave you struggling during an emergency.
So, how much money should you actually keep as cash when your total net worth is Rs 1 crore? The answer depends on your monthly expenses, income, financial goals and how stable your job or business is.
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For most people, the idea is to keep enough easily accessible money for emergencies and near-term needs. The remaining money should be used for suitable investments.
How To Allocate Rs 1 Crore?
When it comes to investing, there is a simple rule that many investors use to get a broad idea of how to divide their money. The rule is linked to age and is meant to provide a basic framework for deciding how much of a portfolio could be allocated to different asset classes.
The “100 minus age” rule is a classic investing guideline that suggests subtracting your age from 100 to find the percentage of your portfolio that should be in stocks (equities), with the rest going into safer assets like bonds or cash.
Formula:
Equity % = 100 − Investor's age
Example 1:
Investor age 40
Equity: 60% = Rs 60 lakh
Debt/fixed income: 40% = Rs 40 lakh
Total: Rs 1 crore
Example 2:
Investor age 70
Equity: 30% = Rs 30 lakh
Debt/fixed income: 70% = Rs 70 lakh
Total: Rs 1 crore
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This framework allows investor to adjust the risk profile of their portfolio depending on their age. Still, investors need to understand that this is only a rule of thumb. The actual allocation can also depend on income, expenses, time horizon, risk tolerance, and whether the Rs 1 crore is needed for retirement.
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