No matter how hard you work and how much you earn, you aren’t optimising your money unless you are strategically investing it. And so, if you want to create a substantial amount of corpus in the next few years, mutual fund investments could be the investment type that might help you get there.
What mutual fund to select?
There are several types of mutual fund investments that you can consider such as equity, debt, and balanced funds. Equity funds primarily invest in stocks of companies and equity-related instruments and hence earn higher, market-linked returns. Debt funds, on the other hand, invest in fixed-income securities such as corporate bonds, government bonds, etc. Balanced funds invest in both equity and debt instruments for a more balanced risk-return profile.
When you want to build a corpus of Rs. 10 crore in 10 years, your goal here is long-term wealth creation. For this, equity mutual funds are the best choice. While equity funds do come with the market risk of volatility, your long investment horizon hedges that risk. That’s because over the long-term, the short-term market fluctuations can be ironed out without impacting your overall mutual fund investment returns.
Mode of mutual fund investment
When you want to invest in mutual funds, you can do this in two ways. The first is by making a lumpsum investment. When you have a significant amount of excess money lying idle with you, you can invest it in its entirety in the mutual fund of your choice through the lumpsum investment option.
The second method to invest in mutual funds is the Systematic Investment Plan (SIP) and this one is more popular among investors. The reason for that is that an SIP allows you to invest small amounts on a regular basis, such as monthly, in the mutual fund scheme of your choice.
How to create a corpus of Rs. 10 crore with a mutual funds SIP?
Depending on the category of equity mutual fund you select, over the long term, equity funds tend to provide returns between 10 to 15 percent.
If you invest in a fund where the average or expected returns are 10%, you will need to invest Rs. 5 lakh every month. Over a period of 10 years, your total invested amount would equal to Rs. 6 crore on which you would earn returns of around Rs. 4.32 crore. Your total corpus would hence be around Rs. 10.32 crore.
At the higher end of the expected returns of 15%, you will need to invest Rs. 3.6 lakh a month, which would make your total invested amount Rs. 4.32 crore. Since the returns in this scenario are higher, the amount of your SIP, while lower, can still help you build your Rs. 10 crore corpus in the same 10-year investment horizon. In this scenario, your corpus would amount to about Rs. 10.03 core.
You can use an online SIP calculator and try out different monthly contributions, time horizons, and average returns to figure out what seems to work the best for you.
It’s important to carefully pick the mutual fund scheme before you begin investing. If the fund’s objective, risk level, and other parameters do not align with your financial goals, it may not help you build your desired corpus in the ideal timeline. Hence, make sure to check all the scheme details and compare it with other similar mutual fund schemes before you make your investment decision.