How much we can earn in mutual funds? To put it honestly, the sky's the limit. Suppose you are a young investor with a moderate tolerance for risk since you are in the early stages of your career. If Rs. 1.5 crore is your targeted corpus, which are the suitable wealth creation mutual funds that you should invest in and what could be the returns that you should target? Suppose you earn well and are deploying approximately Rs. 10-15,000 every month in mutual fund investments across various funds along with investing a lump sum amount annually as your emergency corpus.
In such a scenario, you have naturally picked projected winners like the Mirae Asset Large Cap Fund, Invesco India Contra Fund, Canara Robeco Emerging Equities Fund, SBI Focused Equity Fund, ICICI Prudential Us Bluechip Equity Fund, Kotak Emerging Equity Fund and L&T Midcap Fund among others. You may wish to accumulate this sum of Rs. 1.5 crore in around 15-20 years for accomplishing a major objective like buying your own home in a metro city. In such a scenario, what would the experts state? Industry players advise simplicity for the strategy behind investing. If you have a moderate profile in terms of risk, multi-cap schemes are ideal options. You may consider large-cap plans for diversification of the portfolio and lowering overall risk elements. The integration of every possible type of fund and segment will only complicate matters. Large and multi-cap are the suitable fund types for your risk tolerance in this scenario although you should bypass small cap and mid-cap plans which are more suitable for investors with a huge appetite for risks and ability to ride out market volatility. These are more aggressive investors by nature as per experts.
So you see it is a continuously variable process and there is no one size fits all theory that can work for you. So for a question like I have 5000 rs to invest, what should I do, experts will always advise you to re-assess and examine your own financial position and risk profile. Keep your portfolio crisp and effective. Do not have in excess of 4-5 funds/schemes (inclusive of ELSS) in the investment basket. Take help from a professional investment advisor or financial expert. Have a specific number affixed to every financial goal without any assumptions. Factor inflation into your calculations for getting a more realistic corpus as your target. Also, equities are always better options for achieving long-term objectives like retirement planning or buying a house in 20 years or so. For combating inflation and building a sizable corpus over a sustained duration, you should choose equity which can give you better returns than various other asset classes.
Can mutual funds make you rich?
Can mutual funds truly make you wealthy in the future? How much money can you make from a mutual fund realistically? The answer is yes, mutual fund investments may make you considerably wealthy but you need patience, experience and discipline alike. You should invest on the basis of your specific financial goals/objectives and stay disciplined with your monthly investments. Take professional advice on the best plans/schemes to invest in and the longer you stay invested, the more chances you have to earn higher returns. Stay patient and ride out market fluctuations in the short term. You will thus benefit hugely from the power of compounding while spreading out your investments through SIPs will give you averaging benefits too.
Suppose you wish to achieve a corpus of Rs. 1.5 crore within a period of only 10 years. Taking into account the returns that are expected at approximately 13-14% (conservative estimates), you will have to invest roughly upwards of Rs. 50-60,000 each month in SIPs (systematic investment plans) for earning this amount in a decade. However, you can always start small and scale up your monthly investments with increases in your income and greater financial stability. Also take into account that everything will be costlier in the future including real estate, cars, vacations, higher education, weddings and the like. So take inflation into account while outlining your goals. You may have just started your career as a young executive with a smaller monthly salary. Start investing small amounts in order to build up a handsome corpus that meets your future needs to the hilt. Stay disciplined with your investments and track performance. These are the two things that you need to do at your end.
Your salary will keep increasing annually and you can invest all surpluses into mutual fund SIP, thereby achieving your financial targets faster than you initially envisioned the same. Here is how SIPs can give you stellar returns in the long haul. Investing approximately Rs. 10,000 every month for a decade, i.e. 10 years, will put the principal investment amount at Rs. 12 lakh. Yet, with the annual return expected at 15% from equity SIPs, your final corpus may touch a whopping Rs. 28 lakh. This indicates more than 100% of growth on your investment. Compounding is the real game-changer in this scenario. A sum of Rs. 27.9 lakh after a period of 10 years will translate into Rs. 40.4 lakh in a period of 12 years while Rs. 67.7 lakh will be the amount after 15 years. If you invest for 18 years, the sum will turn into Rs. 1.1 crore and once you touch the 20th investment year, it could reach Rs. 1.5 crore. Suppose your starting salary was Rs. 20,000 and you invested 50%, i.e. Rs. 10,000 every month. The proportion of the investment to your salary will keep going down and by the 20th year, the amount invested every month will just be 5-10% of your salary every month. Your income will keep increasing every year likewise.
If you continue the multiplication of your money in a SIP, then between years 20 and 22, the corpus of Rs. 1.5 crore will turn into Rs. 2.1 crore. The amount could also be a whopping Rs. 14.9 crore by the end of the 35th investment year. This will be at a juncture when you still have 5 remaining years for your retirement. That is the magic of compounding.
Author Bio: Bryony Jones is a vivid content writer and loves to write about education-related content. For more information, you can check her blog at pop-pins.com
The views expressed in this article are that of the author and don't reflect views of Mumbai Live
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