We all aspire to create wealth. For this we set financial targets and take steps that can help us fulfilling them. Investing wisely ensures funds to take care of our short and long-term goals. Whether saving or investing, it is always wise to start early to reap the maximum benefits of compounded growth. This helps turn even a small investment into a big sum in the long run.
In this article, we take a look at one such avenue for wealth creation: equity mutual funds. Investing in this tool can help you create a corpus of Rs 50 lakh in 10 years. Here is how.
Equity mutual funds are the best way to help achieve wealth-creation targets. The long-term returns from equity mutual funds exceed those from small saving schemes such as PPF.
As per the CRISIL – AMFI Equity Fund Performance Index for March 2018, equity mutual funds as a category have delivered 11.80% per annum in the preceding 10-year period. These are returns for the whole marketplace. There are funds which have outperformed this benchmark as well.
If you have an aggressive, 10-year window for investment, and need to a corpus of Rs. 50 lakh at the end, here’s how you can invest.
|Rs. 50 Lakh In 10 Years|
|Plan 1||Plan 2|
|Monthly SIP Amount||Rs 20,000.0||Rs 20,000.0|
|Tenure In Years||10||10|
|Corpus with CAGR (12%)||Rs 4,646,782.0||Rs 6,748,653.0|
|Corpus with CAGR (15%)||Rs 5,573,145.0||Rs 7,914,839.0|
|Remaining Invested For 10 More Years (Without Fresh Investment)|
|Corpus with CAGR (12%)||Rs 14,432,199.6||Rs 20,960,291.8|
|Corpus with CAGR (15%)||Rs 22,546,479.9||Rs 32,019,938.1|
Plan 1 — if you invest Rs. 20,000 per month for 10 years with a CAGR expectation of 12%, you’ll have a corpus of Rs. 46.46 lakh.
Plan 2 — A better way to implement this plan is by stepping up your investment. If you invest in the same plan but also step-up the investment by 10% every year, you’ll have a corpus of Rs. 67.48 lakh in 10 years.
If you pick a high-performing fund, you can expect to exceed the 12% returns mark over 10 years. Assuming you end up earning 15% per annum, you’ll have a corpus of Rs. 55.73 lakh from Plan 1, and Rs. 79.14 lakh from Plan 2.
You also have the option of stopping fresh investments into your plan, and simply remaining invested in a fund for the long term by not liquidating it.
If you do so for only 10 more years, expecting long-term returns of 12% per annum again, you can have a corpus of Rs. 1.43 crore from Plan 1, and Rs. 2.09 crore from Plan 2.
However, you should take up any investment in line with your financial goals and your risk taking potential. You can also take help of a financial expert for a better understanding of the investment option.
The writer is CEO, BankBazaar.com.