Over the last few years, mutual fund investment has emerged as one of the most sought-after ways to accumulate wealth, and this is evident from the official data from AMFI showing a record rise in the number of folios and assets under management (AUM) of fund houses.
More and more people are opting for mutual funds to meet their short-term and long-term financial goals based on their risk appetite, as there are thousands of schemes available in the market. One reason why the mutual fund route to make money is getting popular is that investors want to make money from stock markets, but they don’t want to take that risk to directly invest in equities for various reasons. However, the mutual fund path gives them the freedom to invest in equities and also protects them from uncertainty to a large extent as they have options to choose from as per their risk-taking capacity.
Mutual funds give investors an edge over other traditional investment tools like PPF, NPS, fixed deposits and other savings schemes in terms of return on their investments (RoIs), provided they are willing to take some risks associated with stock market investing.
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Start with small SIPs and increase the amount over time
Another benefit mutual funds provide to investors is that they can start with an investment of as little as Rs 500 and increase it over time as their income grows. However, to take advantage of compounding and build a substantial corpus, one must invest a decent amount every month to reach that goal. For instance, if you aim to accumulate Rs 1 crore through mutual funds, you need to select some good equity funds and assess their past performance.
15-15-15 rule to make Rs 1 crore from mutual funds
Assuming an equity fund offers a 15% annual return, you would need to invest Rs 15,000 per month via SIP for 15 years to achieve your goal of reaching Rs 1 crore.
Power of compounding
Albert Einstein called compounding the eighth wonder of the world. He said, “He who understands it, earns it. He who doesn’t pays it.”
But to witness the magic of compounding, you need to remain invested. So essentially, investment requires not only your capital but also your time. Even if you start with a small SIP amount and increase it over time, you can build a significant corpus thanks to the compounding effect.
We have already discussed how you can reach the first Rs 1 crore corpus goal in 15 years. You invested Rs 15,000 per month in a mutual fund for 15 years, and now you have a Rs 1 crore fund portfolio. Now, suppose you invest this amount for another 15 years and get 15% annual return. You will be amazed to know that, because of the compounding effect, this Rs 1 crore will turn into Rs 10 crore in the next 15 years.
Conclusion:
In the investment world, a simple saying is ‘money attracts money’. This is true because, as your investment grows, the returns generated on the larger investment base also increase. This leads to exponential growth over time.
It is important that if you want to take advantage from the power of compounding, the first thing you need to understand is that without patience you cannot make money through investment.
It also underscores the idea that time is money when invested wisely. With a long-term investment horizon, you can construct a progressive portfolio and aspire to become a crorepati using the 15x15x15 rule.
