How equity mutual funds can pave your way to becoming a 'crorepati'

Your dream of becoming a ‘crorepati’ may seem difficult. But in reality, if you plan your finances and invest in the right instruments someday you will have your dreams realised someday. One of the best ways to try and achieve the crorepati dream could be investing in equity mutual funds for good returns over a long period of time. There is a definite correlation between the time and money. If you have less money to invest then you have to wait for a longer time to get your goal accomplished and if you have more money to invest you might reach your goal earlier if you plan and invest properly.

However, before investing in mutual funds, especially –equity MF’s, you should ask yourself two questions:

how much you have to invest and over how long to reach your Rs 1 crore destination.

Here we try to get you answer to both the questions.

 How much to invest monthly?

As a young investor, you may easily take a higher risk by saving less amount and gain more returns to achieve your financial goals. While being in the middle of the age, you can take the moderate risk to head toward becoming a crorepati.

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Thus, at an early age even if you have less money to invest, you can become crorepati by investing Rs 700 per month (which is the least amount) for 35 years, at an assumed 15% rate of return to accumulate the desired amount.

However if you start later, you need to invest more money to reach your financial goal. For instance, you will need Rs 5500 per month for 25 years, at an assumed 12% rate of return, you will be able to make Rs 1 Crore approximately.

A larger amount of Rs 13,500 per month for 20 years, at an assumed 10% rate of return, will enable you to make Rs 1 Crore.

How to select a fund?

To earn 12-15% of return on your investment, you need to select good equity stocks or one can go for equity mutual funds to mitigate the risk to an extent. While selecting, equity MF, you need also check that your portfolio should have mid-cap/small-cap funds for around 30-40% and the remaining 60-70% should have a diversified fund, a large-cap fund, etc. to maintain an aggressive portfolio with right asset mix.

Whereas to maintaining a return of around 10-12%, you should invest in balanced fund/hybrid fund, etc. to maintain a moderate risk portfolio. In such case, one can avoid or reduce the investment amount in mid-cap/small-cap funds or avoid making investments in risky stocks.

Are there alternatives?

Investing money in pension plans, NPS can also help you achieve this financial goal. However, the returns offered under such schemes are not stable and market linked. Moreover, in some instruments, returns are subject to change as per the government rules. Also, investing in an instrument like fixed deposits, national savings certificate, etc. may not help you achieve the goal within the maximum time period as mentioned thereon.

Here’s Why You Should Invest In Equity Mutual Funds

One should also have to remain invested for a longer time period and follow proper asset allocation strategy to achieve the target amount. It is must to take the help of a financial adviser before making such financial decisions.

In the grid given above, make sure you know that any investment made in equity mutual fund or equity stocks are not guaranteed. The returns are also volatile and not fixed as they are dependent on the financial market.