Systematic investment in equity mutual funds is the most convenient option for retail investors to create a large corpus over the long term.
Millennials have big dreams of financial success and financial freedom. A safe and secure financial future is not difficult to achieve if you are in your 20s or early 30s. All you need is proper financial planning. Just think of it: a saving of barely Rs 70 a day can create a corpus of Rs 1 crore after 30 years and get you an insurance cover of another Rs 1 crores for the next 30 years.
Here is how you can do it:
Invest in Mutual funds
Investing Rs 50 per day (that is Rs 1500 a month in an equity MF-SIP) in mutual funds for a period of 30 years will generate a corpus of approximately Rs 1 crore (assuming the rate of return at 15% approximately). This amount will be tax-free in the hands of an investor.
“Several products provide you the benefit of compounding. These include fixed deposits and recurring deposits including bank FDs and RDs, schemes like KVPs, as well as mutual fund SIPs. While every one of these provides the benefits of compounding, mutual funds are the best hedge against inflation and can offer the highest returns over time,” said Ajit Narasimhan, Category Head – Savings & Investment, Bankbazaar.com.
Manish Kothari – Head of Mutual Funds, Paisabazaar.com, says systematic investment plan can create big corpus in the long run. “Systematic Investment Plans (SIPs) in equity mutual funds is the most convenient option for retail investors to create corpus over the long term. Through the automatic purchase of units on pre-specified dates ensures financial discipline and regular investment. This helps in avoiding the perils of market timing and averages your investment cost during market corrections. Even small investors can diversify their investments across several funds and benefit from the power of compounding,” Kothari said.
However, you should also know that market volatility and other economic factors will also play an important role in averaging your returns throughout the investment tenure while pooling your money into mutual funds.Planning to invest in mutual funds? Here are 10 fund options to look at
Buy Life Insurance
Instead of buying any traditional insurance plan, buy a term insurance especially when you are in your younger age because it helps you get a high life cover paying lesser premium annually. Purchasing a simple term plan between 26 and 30 years of age will cost you approximately Rs 20 per day (or an annual premium of Rs 6000). This cost of the policy purchased will provide you a cover of Rs 1 Crore for the next 30 years with certain terms and conditions.
“Term plans are the simplest and most fundamental death benefit plan without any money back or maturity benefits. The Term insurance product is designed for a specified term (between 5-30 years) and provides benefit to the beneficiary if the policyholder dies during the covered term. Unlike traditional plans, it is not an investment plan,” says Ankur Agrawal, Category Head – Life Insurance & Personal Loans, Bankbazaar.com.While buying a term plan you can seek a cover which is approximately 10-20 times of your current annual income. However, before opting the same, you should view your family’s long-term financial needs before deciding on a sum assured.
|Category||Investment||Goal Period (Years)||Per day Cost*||Security/Wealth Creation (Rs)|
|Insurance||Term Plan||30||20||1 Crore|
|Mutual funds||Equity||30||50||1 Crore|
Therefore, on the whole, if approximately saving Rs 70 (Rs 20 against term insurance and Rs 50 against mutual fund investments) a day, you can easily secure your dependents and have a big corpus as you near your retirement.
Having said that Agrawal added, “Term plan is usually considered as the best way of insuring as the premium is very low and the death cover compared to traditional plans is high. The low premium means that they are easily affordable. In the case of youngsters, the premium would be even less as they are starting earlier and premiums go up with age. The high death cover means that the insured's family is adequately protected in case of any unforeseen circumstance. So, term insurance is a must not just for young people but for everyone”.However, premium rates of term insurance plan differ from company to company with various options and add-ons available, which once opted can also change the premium amount to a higher level.