How a Small Investment in Mutual Funds Can Make You a Crorepati
Introduction: Mutual funds are a powerful way to achieve financial goals like wealth creation with relatively low hassle. Whether you’re just starting out or planning for long-term financial security, mutual funds offer flexible options for every type of investor. In this article, we’ll explore how a small, consistent investment of as little as ₹1 per day can help you achieve the milestone of becoming a crorepati, or millionaire, through mutual fund investments.
Two Ways to Invest in Mutual Funds
There are primarily two ways to invest in mutual funds:
- Lump Sum Investment: As the name suggests, you invest a large sum of money in one go.
- Systematic Investment Plan (SIP): SIP allows you to invest a fixed amount at regular intervals, like monthly or quarterly.
While lump sum investments require a significant amount of capital upfront, SIPs are more accessible for the average person because they allow you to start investing with small amounts, like ₹500 or even as low as ₹1 in some cases.
Start Small and Grow Big: The Power of Compounding
One of the key benefits of mutual funds, especially when invested for the long term, is compounding. In simple terms, compounding means you not only earn returns on the amount you initially invest but also on the returns that are generated over time. The longer your money stays invested, the more it grows. This is often referred to as the “magic of compounding.”
Example: ₹1 Per Day Can Make You a Millionaire
Let’s assume you’re 22 years old and can save just ₹1 per day, which comes out to ₹30 a month. If you invest this amount in equity mutual funds, which typically offer an estimated annual return of 12% over the long term (7+ years), your savings will grow substantially over time.
Now, let’s scale it up a little. If you save and invest ₹100 per day (₹3,000 per month), according to a mutual fund SIP calculator, you will accumulate ₹1 crore in 30 years with an average return of 12%. This means that by the time you are 52, your total investment would be around ₹10.8 lakhs, but your returns will grow your corpus to ₹1 crore, thanks to the power of compounding.
Want to Become a Crorepati Sooner? Consider Step-Up SIP
If waiting 30 years seems too long, there is another way to speed up your journey to ₹1 crore—through a Step-Up SIP. In a Step-Up SIP, you increase your investment amount by a certain percentage (say 10-20%) every year. For example, if you start a SIP with ₹3,000 per month and increase it by 20% every year, you can accumulate ₹1 crore in just 19 years, as opposed to 30 years with a fixed SIP.
This allows you to reach your financial goal much faster, by simply increasing your investment amount gradually over time.
The Reality of Mutual Fund Returns
It’s important to remember that while mutual funds offer potential for high returns, they are market-linked and do not guarantee fixed returns like fixed deposits (FDs). However, many equity mutual fund schemes have provided impressive long-term returns of 15-16% or more. If your mutual fund scheme delivers a return higher than the assumed 12%, you could achieve your wealth creation goals even sooner.
Important Tips for Reaching Your Financial Goal
While mutual funds can make wealth creation simpler, there are a few critical things to keep in mind:
- Stay Consistent: Don’t stop investing or withdraw your money prematurely. Let your investments grow to their full potential over time.
- Regular Portfolio Reviews: It’s essential to review your portfolio every 6-12 months. This helps you assess performance and make adjustments if needed.
- Seek Professional Advice: Always consult with a financial advisor to get the best advice for your investment strategy.
- Start Early: The sooner you start investing, the faster you can reach your financial goals. Time is your biggest ally when it comes to compounding.
Conclusion
Becoming a crorepati through mutual funds may sound like a dream, but it’s entirely achievable with the right approach. By starting small, staying consistent, and leveraging the power of compounding, even a tiny investment of ₹1 per day can grow into substantial wealth over time. With tools like SIP and Step-Up SIP, mutual funds offer flexible ways to invest and grow your money, making wealth creation accessible to all. The key is to start early, stay patient, and regularly review your investments to stay on track toward your financial goals.
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