Dear Readers,
We all have financial goals in our lives, some are long term while some short term. We Indians have always believed in savings for the purpose of achieving our financial goals, such as Education, marriage, a new home or retirement savings etc.
In one of our previous articles, we discussed about benefits of Equity SIP. (For link CLICK HERE) Well, today at Richvik, we present an article on how Mutual Fund SIPs can help you securing a sound financial future.
What is your Financial Future?
Our financial future refers to the financial stability that we require in our future. They can also be defined by the financial goals that we desire to achieve. Some examples of short term financial goals are buying a car, going on a family trip/vacation or completing some educational course.
Long Term financial goals can be defined as buying a Home, planning for children’s education, planning for one’s retirement, accumulating children’s marriage fund and so on.
What is a Mutual Fund SIP?
A Mutual Fund Systematic Investment Plan (SIP) refers to investment in Mutual funds a fixed amount at a fixed period of interval, similar to a bank recurring deposit. For e.g., if one opts for Monthly SIP of Rs. 10,000 then every month Rs. 10,000 would be debited from your bank account and would be invested in the mutual fund/s as advised by us.
How does Mutual Fund SIP help you achieve your financial goals?
Mutual Funds can provide returns between 6 to upwards of 14% compounded over a long period of time. Let us look at certain examples to understand this well.
Ex. 1: Assume a person aged 21 years, wishes to fund his/ her marriage expense on their own. The desired marriage corpus is Rs. 15,00,000 and desired age for marriage is 28. How much amount does the person needs to invest on monthly basis?
We, the answer is just Rs. 10,610!
A sum of Rs. 10,610 may seem to be small at present, but when compounded annually at 14% for 7 years will result into a corpus of Rs.15,17,000 by the end of the period.
It is rightly said that, that one should start saving and investing Early in life. However, even if one misses the bus of early investments, one can start Mutual Fund SIPs at any point of time in life, and with consistent investments, be assured that the investments will fetch decent returns.
Ex. 2: Let’s see another example, suppose a person was not able to accumulate sufficient sum of money for his/her retirement or his other requirements till the age of 35, then how should he proceed with his retirement goals?
Well, the solution here is, that even if a person starts saving 30% of his earnings at the age of 35 and dedicates the same to his/her retirement corpus for the next 20 years, then too, he can accumulate a decent corpus.
Further explaining the above, assuming the person earns around Rs. 50,000 per month at the age of 35 and choses to invest 30% of his earnings, i.e. Rs. 15000 per month, for 20 years his corpus would reach a sum of Rs. 2.0 Crores
How rightly said, that Compounding is the Eighth wonder of the world!
Now, one may say that only those are able to invest a higher sum of amount per month, are able to gain good returns. Well, that’s not entirely true. Even if an investor invests a sum of Rs. 6000 per month, for 24 years, the accumulated corpus would be Rs. 1.40 Crores.
Rs. 6,000 per month may seem to be a small amount, but when accumulated over a long period of time, its impact on our financial future is huge.
Ex. 3: Taking one more example into consideration, one of the biggest expenditure a couple faces after marriage is the expense of raising a child. On an average, a couple spends around Rs. 10 Lakhs on a child in the initial ten years of the child, on various expenditure such as medicines, vaccinations, food, clothing, toys, preliminary education, school fees etc.
However, when the couple are in DINK phase (Double Income No Kids) where both the partners are working and have no major expenditure, the couple may start investing a small sum of Rs. 3,500 per month, which over 15 years will raise a corpus of Rs. 21 Lakhs, enough to bear all the higher education expense for your child/ Children.
Let us look at a chart, which shows value of investments after different number of years, when compounded at different rates.
| No of Years | 10 | 20 | 30 | |||||||
| Rate of Interest | 8% | 12% | 14% | 8% | 12% | 14% | 8% | 12% | 14% | |
| Amount of SIP | ||||||||||
| 1,000 | 1,84,165 | 2,32,339 | 2,62,091 | 5,92,947 | 9,99,147 | 13,16,346 | 15,00,295 | 35,29,914 | 55,57,056 | |
| 2,000 | 3,68,331 | 4,64,678 | 5,24,182 | 11,85,895 | 19,98,296 | 26,32,692 | 30,00,590 | 70,59,828 | 1,11,14,111 | |
| 3,000 | 5,52,497 | 6,97,017 | 7,86,275 | 17,78,841 | 29,97,443 | 39,49,038 | 45,00,886 | 1,05,89,741 | 1,66,71,167 | |
| 5,000 | 9,20,828 | 11,61,695 | 13,10,456 | 29,64,736 | 49,95,739 | 65,81,731 | 75,01,476 | 1,76,49,569 | 2,77,85,278 | |
| 7,000 | 12,89,159 | 16,26,373 | 18,34,639 | 41,50,630 | 69,94,035 | 92,14,423 | 1,05,02,066 | 2,47,09,396 | 3,88,99,389 | |
| 10,000 | 18,41,656 | 23,23,390 | 26,20,913 | 59,29,472 | 99,91,479 | 1,31,63,462 | 1,50,02,952 | 3,52,99,138 | 5,55,70,556 | |
| 15,000 | 27,62,485 | 34,85,086 | 39,31,370 | 88,94,208 | 1,49,87,218 | 1,97,45,194 | 2,25,04,428 | 5,29,48,707 | 8,33,55,834 | |
| 20,000 | 36,83,313 | 46,46,781 | 52,41,827 | 1,18,58,944 | 1,99,82,958 | 2,63,26,925 | 3,00,05,904 | 7,05,98,275 | 11,11,41,113 | |
| 25,000 | 46,04,141 | 58,08,476 | 65,52,284 | 1,48,23,680 | 2,49,78,697 | 3,29,08,656 | 3,75,07,379 | 8,82,47,844 | 13,89,26,391 | |
| 30,000 | 55,24,970 | 69,70,172 | 78,62,741 | 1,77,88,416 | 2,99,74,437 | 3,94,90,388 | 4,50,08,855 | 10,58,97,413 | 16,67,11,669 | |
Analysis of the table:
The above table just proves that even with an small investment of Rs. 1000 per month, when followed consistently for 10- 30 years, one can achieve a huge corpus. Similarly, Rs. 30,000, when invested for 30 years, compounded monthly @ 14% p.a. fetches a sum of Rs. 16 Crore!
Rs. 1000 seems nominal today, but when invested rightly, gives out the best return.
As the famous idiom in hindi goes as – “Boond Boond se sagar banta hai”, even smallest of your investments can fetch you a large corpus if invested wisely. And we at Richvik, are happy to help our clients achieve a sound financial future and assist them in their financial journey.
How can we at Richvik help you achieve your financial goals?
We, at Richvik, aims at providing holistic financial services to our clients and ensure that their financial goals are met. We firmly believe in ‘Customer is King’ Idiom.
We believe that even a small investor, under appropriate guidance, can achieve a huge corpus, which otherwise, is difficult to achieve.
Our Client engagement process involves:
- Financial Planning for our clients,
- Goal tracking and monitoring through software and mobile app,
- Client engagement from Financial Mentors at regular intervals,
- Advise for shift of funds as per market conditions,
- Regular goal wise reporting.
With a team of 8 qualified Financial Mentors, we assure you that your wealth is in safe hands.
And with the Mutual Fund Industry booming, this is a sure way to create wealth!
To know more on Mutual fund investments and SIPs, feel free to contact us.