Small investments at regular intervals can make you rich

Mutual funds allow you to start building your investment portfolio even if you have a nominal amount of Rs 500 to invest. However, even a small amount of Rs 500 invested over a long period can help you create a handsome amount of wealth. All you need is to identify your investment objective and your long-term financial goal which might be education or wedding of your child or retirement planning for your own self.

“Aligning financial goal with your investment would help you decide how much to invest and the category of mutual funds to opt for,” said Manish Kothari – Head of Mutual Funds, Paisabazaar.com.

Kothari further added that most mutual fund schemes have minimum investment requirement of Rs 500 for monthly SIP and Rs 5,000 for lump sum investment. “However, ELSS funds have a lower floor amount of Rs 500 for both lump-sum and monthly SIP. Some funds like Reliance Small Cap also allow SIPs of Rs 100 for minimum monthly installments of 60 months,” he said.

Here are four different cases which will help you understand how you can create huge wealth by investing systematically over the long term. We have taken Rs 1 crore as your target corpus. Here is how much you need to invest in mutual fund SIPs to get to that goal:

If you invest Rs 1500 per month for 30 years in equity mutual fund SIP assuming that it is giving you a return of 15% p.a, you will be able to make generate a corpus of approximately Rs 1 crore. This means you have invested Rs 5.4 lakh of your own and gained a profit of approximately Rs 94.6 lakhs on your invested amount.

If you are investing Rs 3000 per month for 25 years in equity mutual fund SIP assuming that it is also giving you a return of 15% p.a, you will be able to make generate a corpus of approximately Rs 1 crore.  This means you have invested Rs 9 lakh of your own and gained a profit of approximately Rs 91 lakhs on your invested amount.

If you are investing Rs 6500 per month for 20 years in equity mutual fund SIP assuming that it is also giving you a return of 15% p.a, you will be able to make generate a corpus of approximately Rs 1 crore.  This means you have invested Rs 15.4 lakh of your own and gained a profit of approximately Rs 84.6 lakhs on your invested amount.

This shows that even if you have a nominal amount to save and invest, your wealth will grow in multiples when the time horizon is long. This happens due to the power of compounding.

“Compounding refers to making money on the gains made on the original investment. The earlier you start investing and the longer you stay invested, the higher would your returns from compounding. As SIPs allow investors to initiate their investments with as low as Rs 500, they can start investing early in their life and get higher returns due to the power of compounding,” added Kothari.

Further, Bhartendra Singh, Head of Product for Investment and Insurance Marketplace, Wishfin said that investors have to assess their requirement & match it with the type of mutual funds that are suitable for their need. That said, mutual funds are a very good vehicle for managing your money.

“It is very important for investors to control the financial behaviour while not panicking with market volatility or trying to time the market. They can only do this when they clearly understand the benefits & risks,” he said.

However, one should also know that the returns are not guaranteed and are volatile in nature. Therefore, to maintain a decent average return, one needs to have a well-constructed portfolio.