Investing in mutual funds is considered as a smart way to grow your money as it offers a balanced approach for both beginners and seasoned investors. Mutual funds offer several key advantages to investors. Firstly, they provide instant diversification, as an investor's money is spread across numerous securities, reducing the overall risk exposure.
Secondly, they are managed by experienced professionals who have the expertise and resources to conduct thorough research, analyze market trends, and make informed investment decisions on behalf of the fund's shareholders.
Another notable benefit of mutual funds is their liquidity. Investors can easily buy or sell their fund shares at the current net asset value (NAV), which is determined at the end of each trading day. This liquidity allows for convenient entry and exit points, making mutual funds a flexible investment option.
Furthermore, mutual funds offer various investment objectives and strategies to cater to different investor goals and risk appetites. Some funds may focus on growth, income generation, or a combination of both, while others may specialise in specific sectors, industries, or geographical regions.
One of the best investment formulae is 15x15x15 Rule of Mutual Funds. If investors aim to earn Rs 1 crore in the near future, this rule can be a good attempt to achieve your goal.
What is 15-15-15 Rule?
The rule says to achieve the goal of earning Rs 1 crore, an investor should invest Rs 15,000 monthly through SIP for 15 years, considering a 15% annual return from an equity fund. Consistent adherence to this strategy can lead to significant wealth accumulation. This can be easily achieved if one is consistent in their SIP investment.
Investment for 15 years
Utilising the SIP calculator, an investment of Rs 15,000 monthly over a duration of 15 years results in a total capital outlay of Rs 27,00,000. Assuming an annual return of 15%, the projected long-term capital gains are estimated to be Rs 74,52,946. After 15 years, you will get a total of Rs 1,01,52,946.
Compounding in Mutual Funds
Compounding is a crucial aspect to understand when it comes to investing in Mutual Funds. This strategy involves investing a small amount of money regularly, which then grows over time into a larger sum through the power of compounding.
Essentially, compounding allows your initial investment to earn returns, which are then reinvested to generate even more returns in the future. By reinvesting earnings within the same investment timeframe, the compounding effect amplifies the value and profitability of your investment.
This concept forms the basis of many investment opportunities, making it essential to maximize gains by investing in mutual funds promptly and consistently. The idea of compounding highlights the importance of starting early and staying committed to long-term investment goals in order to see significant growth in wealth over time.
Equity funds: Large cap vs Mid cap vs Small cap
Many equity funds, encompassing short-, mid-, and small-cap categories, have achieved annual returns exceeding 15 per cent over the past decade. Consequently, sustaining a 15 per cent return annually for a duration of 15 consecutive years is a feasible outcome.
Investment plan
Investors may opt for a single mutual fund Systematic Investment Plan (SIP) or diversify across multiple SIP schemes to allocate their capital. Strategic investment planning is essential to attain the objective of amassing Rs 1 crore.
Diversification can be achieved by selecting various mutual fund SIPs from different categories such as equity, debt, and hybrid, which helps in mitigating risk associated with market volatility. It is recommended to consult with a professional fund manager to effectively navigate towards reaching the financial goal of Rs 1 crore.
Mutual funds in FY24
The assets under management (AUMs) for the domestic mutual funds industry increased nearly Rs 14 lakh crore to a record Rs 53.40 lakh crore as of March 2024 compared with Rs 39.42 lakh crore as of March 2023, AMFI's annual report stated. In FY2024, the equity-oriented mutual fund categories grew by 55% in fiscal 2024 to Rs 23.50 lakh crore.
