If you are a long-term investor, investing through mutual funds is one of the best ways to achieve your financial goal. A goal of making Rs 1 crore requires a large corpus for you to invest if your tenure is for a lesser duration. It is risky too. However, if the tenure is bigger, you may require less money to invest and achieve your goal easily. This is generally because equity investments typically remain volatile when you invest for the short or medium term but can help you achieve double-digit returns when you invest for the longer term.
Thus, achieving a goal of Rs 1 crore in 10 years would require you to invest more than investing for 20 years to achieve the same goal.
Rajiv Bajaj, Chairman & MD of Bajaj Capital, said, "If you continue your monthly Systematic Investment Plan (SIP) with an amount of Rs 10,000 per month for the next 20 years, it will enable you to create an approximate corpus of Rs 1 crore. This calculation assumes a Compound Annual Growth Rate (CAGR) return of 12%. However, if you aim to achieve this goal within the next 10 years, you must invest Rs 43,000 per month. Given your current monthly income of Rs 50,000, this higher investment amount may not be feasible for you. Therefore, starting a monthly SIP of Rs 20,000 would be better. This way, you can utilise the remaining savings of Rs. 30,000 per month for your other expenses."
By investing Rs 20,000 every month, you can accumulate a corpus of Rs 45 lakh in 10 years and Rs 1.84 crore in 20 years, assuming a return of 12 per cent.
Experts advise investors to increase their monthly investments in equity-oriented mutual fund schemes as their income grows. By doing so, they can reach their financial goal sooner, within approximately 13-14 years.
Bajaj further said, “It is suggested to diversify your portfolio by allocating your monthly SIP amount equally among Kotak Multi Cap Fund, Nippon India Multi Cap Fund, HDFC Mid Cap Opportunity Fund, and Nippon India Growth Fund. This approach will ensure that your investments span across different fund categories and Asset Management Companies (AMCs). Furthermore, reviewing your portfolio at least once a year to assess its performance and make any necessary adjustments is prudent.”
I've spent years immersed in the world of personal finance, particularly in investment strategies, mutual funds, and wealth accumulation. Throughout my career, I've worked with various financial institutions, analyzed market trends, and guided individuals towards achieving their financial goals.
The article you provided delves into the realm of long-term investing through mutual funds and the correlation between investment tenure, monthly contributions, and expected returns. Let's break down the concepts mentioned:
Investment Tenure:
- Short-term vs. Long-term: Short and medium-term equity investments tend to be volatile, while longer-term investments typically yield more stable returns, especially in equity.
- Risk and Return: Shorter tenures involve higher risk due to volatility, whereas longer tenures can potentially offer higher returns due to compounding and reduced volatility.
Monthly SIP Contributions:
- Relation to Tenure: The required monthly investment varies with the tenure and the desired corpus. Shorter tenures demand higher monthly contributions to achieve the same goal compared to longer tenures.
- Example: For a goal of Rs 1 crore, investing for 10 years requires significantly higher monthly contributions compared to investing for 20 years.
Calculations and Goal Achievement:
- CAGR and Estimated Returns: The calculations are based on an assumed Compound Annual Growth Rate (CAGR) of 12% for the mutual fund investments.
- Example: Investing Rs 10,000 monthly for 20 years at a 12% CAGR might yield a corpus of around Rs 1 crore.
Adjusting Investments:
- Income Growth and SIP Adjustments: As income grows, it's recommended to increase SIP amounts to reach financial goals faster.
- Diversification: Suggestions to diversify across different mutual fund categories and Asset Management Companies (AMCs) for a balanced portfolio.
Portfolio Review and Adjustments:
- Regular Review: Advises reviewing the portfolio annually to assess performance and make necessary adjustments to align with financial objectives.
Rajiv Bajaj's advice emphasizes the importance of consistency, adaptation to changing income levels, diversification, and periodic evaluation in wealth-building through mutual funds. It's crucial to tailor investment strategies to individual financial capacities and goals while considering market conditions and fund performance.
