Mutual funds, one of the best and most used forms of long-term investment, have consistently proven superior performance in terms of returns. Investments in mutual funds not only help investors build long-term wealth but also give them access to liquidity and portfolio diversification. One of the most affordable investment plans is a mutual fund SIP, which gives investors the flexibility to contribute on a regular basis with a minimum monthly contribution of ₹500. Most significantly, investing in mutual funds prevents you from putting all your eggs in one basket because investors may diversify their holdings across a variety of securities and asset classes, including gold, debt, and equity, depending on their risk tolerance and time horizon.
As an illustration, let’s say you are a conservative investor who wants to build ₹3 crore in wealth over the course of 20 years. What should your monthly SIP investment amount be, and which fund category should you pick?
Based on an exclusive interview with CA Manish P Hingar, Founder at Fintoo, the spokesperson said conservative investors primarily prefer investing their money in debt instruments due to lower risk tolerance. However, to build wealth over a long period of 20 or more years, conservative investors should consider investing in Equity large-cap Fund or Equity index funds. Having equity exposure will allow these mutual fund schemes to earn higher returns than traditional debt funds.
“For an individual with a conservative risk profile who plans to accumulate ₹3 Crores over a period of 20 years, it is suggested to invest in Equity Large cap funds which invest a larger proportion of their corpus in companies with large market capitalization or Equity Index funds where a portfolio of stocks designed to mimic the composition and performance of a financial market index. Let’s say, if an individual plan to accumulate ₹3 Crores over the tenure of 20 years, assuming the fund generates an annualized CAGR of 12%, then the individual needs to start a SIP of around ₹30,000 per month for 20 years in order to generate the required corpus,” said CA Manish P Hingar.
Also, it is a good idea to step up the SIP amount by 10% every year in order to achieve the goal to accumulate the required corpus 3-4 years early. In another instance, if you increase your monthly SIP by 10% every year then instead of starting your investment with ₹30,000 monthly you can even start with a lower amount of ₹16,000 per month. Please note that the Large cap mutual fund category has delivered a CAGR of 13.15% in the last 10 years, and in the same period S&P BSE 100 TRI Index has delivered a CAGR of 13.28% making exposure to such schemes ideal for investors with conservative risk profile seeking to build wealth over a long period of time, said CA Manish P Hingar.
“It’s also highly recommended to carefully research and compare different mutual funds within a category before making a decision to ensure that you choose a fund that is outperforming its peers and benchmark consistently,” claimed the founder of Fintoo.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
Download The Mint News App to get Daily Market Updates.
No Comments