Choose to invest in equity mutual funds as equities have the potential to deliver high inflation-adjusted return in the long term.
Saving needs to be done with a clear objective in mind and for a fixed targeted amount. This will help in accumulating the desired amount to meet the specific financial goal such as children education or one’s own retirement. And, to begin with, make sure you follow the right approach of – ‘Income minus Savings equal to Expenses’ – and not the other way around. Most people spend out of income and then invest the balance. However, first, one should save and then make expenses so as to ensure the goals are met comfortably.
Saving Rs 5,000 every month in equity mutual fund at an assumed growth rate of 12 per cent can grow to about Rs 50 lakh after 20 years. Out of the total amount, Rs 12 lakh will be your investment while the rest is the gain.
If you increase the savings to Rs 10,000 every month, the maturity amount balloons to almost Rs 1 crore.
On a longer time frame of 25 years, savings of Rs 5,000 or Rs 10,000 will get you nearly Rs 95 lakh and Rs 1.9 crore, respectively at an assumed growth rate of 12 per cent.
But, before you start investing, make sure you have accounted for your inflated cost of goals and the years to goal. For example, you need Rs 25 lakh after 20 years for your child education. But, after 25 years, the cost of education may have moved up to Rs 35 lakh.
If one invests Rs 3,000 a month in SIP for 30 years, the maturity amount is more than Rs 1 crore. You can use any SIP calculator to find out how much you have to invest in SIP to become a crorepati. You can also change the time duration to find in how many years you can become a crorepati.
Choose to invest in equity mutual funds as equities have the potential to deliver a high inflation-adjusted return in the long term. In order to make savings a habit and to avoid the temptation to time the market, it’s better you start SIP in 2-3 mutual und schemes. Make sure they are diversified across market capitalisation and across sectors, stocks and have consistently outperformed their benchmark over a long period.
If you have not yet started saving for your long term goals, make a beginning now. The more you delay, the more will be needed to invest. By starting early, you have to save a lesser amount and let the power of compounding work for you in the long run.