How Wealth Generation Works

Generation Of Wealth a mathematical overview

As discussed in my old story the wealth generation takes time , but how much well i try to answer this using this blog
We know the Real Growth rate Formula which is

Real CAGR=(1+Nominal CAGR/1+Inflation)−1

Let us assume a conversative approach of 13.55% for Nifty 200 in 21Y term (which it has shown historically)

Then real growth will be with nominal CAGR = 13.55% and inflation = 6.55%,
the real CAGR ≈ 6.57% per year.

The graph above shows how ₹1 grows in real terms (inflation-adjusted).

After 1 year → ~1.07x
After 5 years → ~1.37x
After 10 years → ~1.92x
After 20 years → ~3.70x
After 21 years → ~3.95x

So, your money nearly quadruples in real purchasing power after 21 years at these rates.

With a 14% nominal CAGR like in case of Nifty 500 and 6.55% inflation, the real CAGR ≈ 6.99% per year.

From the chart:

After 1 year → ~1.07x
After 5 years → ~1.40x
After 10 years → ~2.02x
After 20 years → ~4.09x
After 21 years → ~4.39x

So in real terms, money grows more than 4x in 21 years — even after fully accounting for inflation.

And yes,assumption is realistic. Over 21 years of disciplined, consistent investing in quality Indian equities or mutual funds, a 14% nominal CAGR is achievable, especially given India’s long-term growth trajectory, corporate earnings expansion, and favorable demographics.

Now let us up our game can assume 14.5% assuming an active investing strategy then At 14.5% nominal, ₹1 → 4.91x real growth will be seen .

Notice how a seemingly small difference of 0.5% CAGR (13.55 → 14 → 14.5) makes a big gap in long-term real wealth.

And if you are an informed and seasoned investor and actively work with a wealth manager and are able to maintain 15% of CAGR/XIRR each year in longer term then the real magic number comes to :

With a 15% nominal CAGR and 6.55% inflation, the real CAGR ≈ 7.93% per year.

From the graph:

After 1 year → ~1.08x
After 5 years → ~1.47x
After 10 years → ~2.15x
After 20 years → ~4.63x
After 21 years → ~5.00x

So in real purchasing power, your money would grow 5x in 21 years.

However as you see across all graphs the real compounding happens at the end.

I broke the 21-year journey into three 7-year blocks and computed the inflation-adjusted (real) compounding for each scenario.

“7-year blocks” show

Key results (inflation assumed 6.55%)

I’ve placed a table and a 7-year-interval chart for you above. Highlights:

13.55% nominal → 6.57% real
7-yr block: ~1.59×
14 yrs: ~2.53×
21 yrs: ~4.03×

Exact doubling time: ~10.8 yrs

14.00% nominal → 6.99% real
7-yr block: ~1.62×
14 yrs: ~2.62×
21 yrs: ~4.26×

Exact doubling time: ~10.1 yrs

14.50% nominal → 7.46% real
7-yr block: ~1.66×
14 yrs: ~2.75×
21 yrs: ~4.53×

Exact doubling time: ~9.5 yrs

15.00% nominal → 7.93% real
7-yr block: ~1.69×
14 yrs: ~2.86×
21 yrs: ~4.97×

Exact doubling time: ~8.9 yrs

So remember your money will really double at appox a decade from investment.

How the “magic” kicks in by blocks

Block 1 (0→7 yrs): Slowest-feeling phase; most of the gain is your contributions + early compounding (about 1.6–1.7×).
Block 2 (7→14 yrs): Prior gains start working; multiplier compounds to ~2.5–2.9×.
Block 3 (14→21 yrs): The curve steepens; you reach ~4.0–5.0× real purchasing power, depending on the nominal rate.

Bonus: Salaried Employees Only

1. Overview of Inputs and Assumptions

Monthly take-home pay: ₹75,000
Estimated total cost to company (CTC): ₹12.5 lakhs per annum
Component breakdown
Gross monthly salary derived by dividing CTC by 12
Basic pay set at 45% of gross (rather than 40%)
Employee Provident Fund (EPF) contributions: 12% of basic salary
Employer’s share of EPF: 8.33% of basic salary (rest 3.67% goes into Pension Scheme)
Annual increments: 8%
EPF credit rate: 8.15% per annum (compounded yearly)
Inflation: 6.5% per annum

2. Salary Components

Gross salary
Monthly gross=₹12,50,00012=₹1,04,167Monthly gross=12₹12,50,000=₹1,04,167
Basic pay
Monthly basic=45%×₹1,04,167=₹46,875Monthly basic=45%×₹1,04,167=₹46,875Annual basic=₹46,875×12=₹5,62,500Annual basic=₹46,875×12=₹5,62,500

3. Annual PF Contributions

Employee’s EPF deposit = 12% × Annual basic = 0.12 × ₹5,62,500 = ₹67,500
Employer’s EPF deposit = 8.33% × Annual basic = 0.0833 × ₹5,62,500 ≈ ₹46,875
Total EPF credit per year = ₹67,500 + ₹46,875 = ₹1,14,375

4. Growth of Contributions Over Time

Each year’s deposit rises by the increment rate (8%).
Contributions form an increasing annuity:
Ct=Ct−1×1.08,C0=₹1,14,375Ct=Ct−1×1.08,C0=₹1,14,375

5. Accumulation with Compounding

For a working span of NN years (from age 22):

Corpus=∑t=0N−1C0 (1.08)t×(1.081) N−1−tCorpus=t=0∑N−1C0(1.08)t×(1.081)N−1−t

N=23N=23 for retirement at 45
N=24N=24 for retirement at 46

Results

At 45 years: ≈ ₹1.64 crore
At 46 years: ≈ ₹1.85 crore

6. Adjusting for Inflation

To express these figures in today’s rupee value:

Real corpus=Nominal corpus(1.065)NReal corpus=(1.065)NNominal corpus

Real value at 45: ≈ ₹38.7 lakhs
Real value at 46: ≈ ₹41.0 lakhs

7. Real Growth Factor

The effective annual gain above inflation is:

greal=1.08151.065−1≈1.55%greal=1.0651.0815−1≈1.55%

Over the entire career:

Factor at 45: (1+greal)23≈1.42(1+greal)23≈1.42
Factor at 46: (1+greal)24≈1.45(1+greal)24≈1.45

Key Takeaways

Revised basic component (45% of gross) and EPS split reduce the employer’s EPF portion.
Final corpus remains in the same range but computed with slightly different ratios.
Inflation-adjusted values reflect the purchasing-power equivalent in today’s terms.
Real growth multiple (1.42–1.45×) indicates corpus expansion net of inflation.