How will you benefit from investing early in mutual funds?
What is the right way to invest in mutual funds? How will you benefit from starting investment in mutual funds early? How is compounding beneficial in SIP?
We all look for saving avenues that would build a healthy corpus when we retire. The mutual fund sector allows us to invest systematically in a way which will create a nice corpus without the investor feeling the pinch in the pocket in any way.
Robust planning
Many salaried people invest in different instruments. If one can build a corpus of more than Rs 1 crore from one single source that will take one forward on the path of financial independence after retirement.
Many invest in fixed-income government-guaranteed instruments such as PPF, NSC, NPS.
But if one has a small appetite for risk, one can easily work towards being a crorepati before one approaches retirement.
The numbers
Consider a person who gets his first job at 25 at a modest salary of Rs 15,000 per month.
If he saves Rs 50 a day, he ends up saving Rs 1,500 a month, or 10% of his salary.
He can easily invest the money in the SIP of a mutual fund with a proven track record.
If he starts investing at 25, he can continue the investment for 35 years before he retires at 60.
The nominal amount he/she is going to invest is Rs 6.3 lakh. However, the amount he would be receiving when he touches 60, will be many times more.
The funds
Experts broadly consider three categories of mutual funds — debt funds, balanced funds and equity linked funds. The last named are usually considered high risk.
For tenure of 35 years and even by a conservative estimate, these funds can deliver returns of 10%, 13% and 16% respectively.
Over a 35-year period, an equity growth fund will build a corpus of about Rs 2.2 crore. If it gives 17% return, on an average, the amount will come to Rs 2.9 crore.
For a balanced fund, the return will be Rs 1.05 crore after 35 years, and Rs 90 lakh if these funds give the return at 12%.
And for debt funds, which are conservative by nature, the returns can amount to Rs 51.4 lakh over a period of 35 years. If we consider the return at the rate of 11%, the return can be Rs 65.1 lakh.
Bottom Line
Mutual funds are linked to the markets and carry varying degrees of risk. Discuss with your investment expert to determine which one is suitable for your profile and invest systematically.
Even a very measured degree of risk will make you a crorepati from a single source if you follow it prudently.
The sooner you begin, the less the pinch in your pocket.
(Disclaimer: The recommendations in this story are based on the respective research and the trend of the market. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing)