Wealth Creation through Mutual Funds

Mutual funds are slowly emerging as a preferred investment option among Indian households, owing to the various benefits they offer to the investors. When the investors ask the question, “how to create wealth”, mutual fund is one of the most common answer, given the wide range of mutual fund schemes available to invest, suiting investors with varied risk profiles and preferences. With a wide range of investment options provided by mutual funds to invest across asset classes, market segments and sectors, moving through the financial journey has only got easier for the investors. Further, with investment options like Systematic Investment Plans (SIP), making regular and consistent investments has become more convenient.

Wealth creation over the long term

Equity markets have rewarded the investors well if they have stayed invested over the long-term. Despite several financial shocks in the markets, S&P BSE Sensex has generated around 16% annualised returns for the investors over the last 40 years. Rs. 1 lakh invested in S&P BSE Sensex in 1979 would have become Rs. 3.84 crores today, giving returns of 384 times over the period. That’s the power of equities to help you create wealth over the long term.

Rupee Cost Averaging

When one continues to invest across the market ups and downs, the investment cost gets averaged over time. Further, a pre-registered mandate to make investments on a periodical basis through SIPs helps the investors tide through the emotional bias, as falling markets otherwise tend to discourage new investments, even when such times enable the investments to be made at lower valuations.

Focus on ‘Time in the Market’

When one intends to stay invested for the long term, the focus should always be on ‘time in the market’ instead of timing the market. This is where goal based investing comes in. Once the investments have been allocated towards a financial goal, the intermittent short-term movements in the markets do not matter. The longer the investment horizon is, the better the result is likely to be as the investments steer through various market cycles. This helps one to capture the higher levels for better returns and lower levels for averaging the cost of investments.

Here is how mutual funds help you create wealth over the long term through SIPs:

Starting Early helps you more

A healthy financial life is not a destination, but an entire journey within itself and starting early towards this journey pays off well too. When one starts investing early, he is able to reap the benefits of compounding in a better manner, as the returns earned over period also continue to gain additional returns for the remaining period of investment. The table below reflects the power of compounding in a better manner:

As evident from the table above, the earlier one starts investing in the goal of wealth creation, more substantial would be the retirement corpus by the time of retirement. However, most of the people fail to prioritise savings into their lives at the early stage of their career and the cost of such delay in investing turns out to be massive at a later stage. When it comes about investing, Warren Buffet advised by saying, “one should not invest what is left after spending, but instead spend what is left after investing.” Board the journey of wealth creation with mutual funds as your investment vehicle to stay equipped with a potential of higher returns and to stay on the course of a healthy financial future.

Disclaimer: The chart/information shared above is for illustrative purposes only and should not be construed as advise. The above is to illustrate the concept of asset allocation. There is also a possibility of the expected event not happening or some other unforeseen event that may affect the future performance of asset class. Investors are requested to note that there are various factors domestic and global that can have impact on performance of the asset class mentioned in the article. Information given is available in public domain.