Don’t save what is left after spending; spend what is left after saving.”, this quote coined by one of the Greatest Equity Investor. The habit of saving is good, but not if your savings are kept idle.
Make it employed and earn the maximum gain from it.
There is the power of investing which tells us how to make the efficient use of money to attain financial goals. ****
There are plenty of investment instruments available in the market, selecting one of the best is a very important affair.****
The criteria for selection of the good investment should consider the inflation.***
Inflation is like termite which slowly degrades the value of your money with time. We will show you with a real situation: The purchasing power of Rs. 10000 in the year 1997 is equal to Rs. 32,220 in the year 2017. It means if you had planned to purchase a scooter by your adolescence in 2017, started saving of Rs. 10000 from 1997 which surely get you a two-wheeler, but a bicycle
It happens because of no investment plan or not considering the inflation. So save the money in such a way it feels you worth in long run.
So, what we are going to discuss here is for those people who still find. But still, want to invest their surplus cash in this kind of investment after seeing the whopping returns.
The Mutual fund, most of the people hears this name in every advertisement of the mutual fund disclaimer saying;
Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing’
This post aims to drain out all the confusion revolves around this disclaimer. So let’s start…
What are Mutual Funds?
A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. The reason for highlighting the ‘common financial goal‘ is one should first decide its goal which required a handsome sum of money in future.
Anybody with an investible surplus of as little as a five hundred rupees can invest in Mutual Funds. It means you can start investing money from a very small amount which is much less than the minimum balance of a bank’s saving account.
The money thus collected is then invested by the fund manager in different types of securities. By investing in mutual funds, you can gain the services of professional fund managers, which handle your money in the more efficient way.
Equity-like returns without any skill:
When you invest in a mutual fund, your money is managed by finance professionals. Investors who do not have the time or skill to manage their own portfolio can invest in mutual funds. By investing in mutual funds, you can gain the services of professional fund managers, which would otherwise be costly for an individual
Fund comparison with BSE Sensex 100 – 5 years Return
It shows the returns percentage of Mutual fund with the Nifty 50(Market Index) over the period of 5 years, the performance of the fund is much similar to the market. After a longer period of time mutual funds returns beat the market returns, here market generate the return of 105% whereas fund able to generate up to 125% of the return.
What if, if we stretched this graph to 10 years, here it looks like:
Fund comparison with BSE Sensex 100 – 10 years Return
So more the number of years you extend more the return you get and more risk-free you are.
Extra Topping of Tax Benefit:
Investments in Equity Linked Savings Scheme (ELSS), a kind of mutual fund qualify for the tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.
No other equity-related investments qualify for tax deduction. So we can say it is a kind of extra topping on our returns which also provide the tax benefit.
Shortest lock-in-period and best gain (over the longer duration) among all the investment option eligible for tax
Benefits of Equity Linked Saving Scheme (ELSS)
By investing in a particular stock of the company, the risk-return can be high or investment in the banking instruments gives you the lower rate of return.
In case of the mutual fund, your money is invested in the multiple companies. If one company in that sector has a bad performance or a losing strategy, it is balanced by other companies that are performing better.
This lowers the risk and creates the diversified portfolio without investing a large amount of money, like in an individual portfolio.
The best part is the fund owner publicly discloses their portfolio regularly in which your money is allocated
SIP is a good EMI:
Investors can benefit from the convenience and flexibility offered by mutual funds to invest in a wide
range of schemes. The option of systematic investment plan (SIP), which means a small amount of investment at regular intervals.
SIP Return over 10 years
Investment of Rs. 5,000 per month over the period of 10 years results in doubled your invested sum. The power of SIP seen whenever the market returns are negative, purchasing at regular interval helps in averaging the overall risk.
Live the Retirement King Size:
What if your retirement becomes a heaven, suppose you are going for the world trip. Imagine you have your own farmhouse and living with your beloved.
Who doesn’t want this type of retirement life?
These all things involved money and it can be fulfilled by the right investment approach.The mutual fund has its biggest importance if we see retirement as a long-term financial goal.
If you have invested Rs. 10,000 as a SIP till your retirement, starting at the age of 25. Find the below summary for the total amount you get at the age of retirement assuming 60yr with 15% compounded annual return. Your invested sum increases to 15 crores!!!
If we also take inflation into account on an average rate of 6% , the invested amount in the above case gets changed to 13.5 crores.
Now, suppose if you start investing at the age of 40, and assuming the same rate of return percentage. The return summary would like as below, the invested sum is gets increases to only 1.5 crores and inflation gets decreased it to 1.05 crores keeping same rate of inflation as above.
So there is a massive difference which is around 10x return you can get by investing at an early age. So start early and reap the more benefits through a mutual fund.
These are some key points which are best describe the benefits of a mutual fund. There is no way risky the mutual fund is. If you invest for a long time and with the goal-based approach, surely the mutual fund will reap the benefits.
So don’t wait for identifying the right time to invest in, start investing at an early age and get most of its rewards.
In the end, I can only say this… Mutual fund Sahi hai !!!