Bhagyaraj was born in Vellankoil near Gobichettipalayam in Erode district in Tamil Nadu. His parents were Krishnaswamy and Amaravathiamma. He married twice. His first marriage was with actress Praveena, in 1981. She died due to an aggravated case of jaundice in August 1983. His second marriage was with actress Poornima Jayaram on 7 February 1984. She was his co-star in Darling Darling Darling (1983). The couple have a daughter Saranya Bhagyaraj who débuted in the 2006 film Parijatham and a son Shanthnu Bhagyaraj who made his début in Sakkarakatti which released in 2008. Beginning his career as an assistant to directors G. Ramakrishnan and Bharathiraja, Bhagyaraj became recognised for his scriptwriting talent. Among his early work was the script for the hit Tamil film Kizhake Pogum Rayil (1978) and Bharathiraja's Tik Tik Tik (1981). He made his directorial debut with the film Suvarillatha Chittirangal (1979).
He quickly established his own concern and started producing a string of distinctive films made mainly in the Tamil language. Bhagyaraj often cast himself in the lead roles of the films he scripts and directs, effectively carving out a niche for himself in the actor-auteur vein. His style of filmmaking is notable for its relatively elaborate, witty, and double entendre-laced script and socially-themed framework. His on-screen personae are typically characterised by their ironic sense of humour and intelligent bravado.
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