Kolkata: Mutual funds have emerged as the preferred investment avenue for a large number of Indians, especially those belonging to the middle class. Mutual funds pool money from a large number of investors to invest it in one particular class of assets or different assets. Mutual funds typically invest in equities, debt, real estate, precious metals such as gold and silver or a combination of these assets.
There are usually two modes of investment in mutual funds — lumpsum and SIP, or systematic investment plan. While lumpsum investments are like somewhat like fixed deposits in banks — putting in a significant amount of money at one time and waiting for it to appreciate — SIPs are completely different. If an individual opts for SIP investment, he/she doesn’t need to put a large sum at one go. On the contrary, one needs to invest a much smaller amount — the amount of which is tailored to one’s convenience — but at regular intervals (preferably) over a long period of time. Let’s find out how a monthly investment of Rs 10,000 can make the investor a crorepati.
How much is Rs 10,000 worth in 10 years
Take a SIP calculator which are available online and without cost. These calculators offer calculations that help one to chart one’s financial journey and set goals. One has to type in the amount of money one wants to invest every month (however, SIP can also be done on a weekly basis of even daily), set the average rate of return the mutual fund scheme can generate and the number of years one can stay invested to reach the desired goal.
If an individual invests Rs 10,000 for 10 years expecting an average annual return of 12%, the value of the investments at the end of 10 years will be Rs 23.23 lakh. The out-of-the-pocket nominal investment will be Rs 12 lakh. So there target of being a crorepati doesn’t materialise. So, what would one do to reach the crorepati goal with this amount of monthly SIP? Let’s fund out.
More than Rs 1 crore
Using the SIP calculator, one can find out that if the investment is continued for 21 years, the amount will become Rs 1.14 crore. But if the investment is terminated at 20 years, the value will be only a bit short of Rs 1 crore.
Now, let’s see what happens if the rate of return is a bit lower than 12%, say 11%. With this rate of return, one can run up a value of Rs 1 crore only after investing for 22 years. The amount will be Rs 1.11 crore. If we consider an even lower rate of return 10%, the time taken to amass more than Rs 1 crore will be 23 years. The final amount will be Rs 1.07 crore.
Therefore, becoming a crorepati with a small SIP is highly possible. The only requirement is to have the discipline to continue investing. If one invests in equity mutual funds, the returns are mostly volatile and one should not panic and withdraw as soon as there is evidence of volatility. The encouraging point is, there are mutual fund schemes that provide higher rates of return. In that case the goal will be reached earlier.
(Disclaimer: This article is only meant to provide information. TV9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, REITs, INVITs, any form of alternative investment instruments and crypto assets.)