Image Source: flickr.com
Mutual funds allow your money to grow through compounded returns in the stock market without requiring you to pick individual stocks. By investing in equity mutual funds focused on growth, your Rs 10,000 can work for you in the background while you go about your everyday life.
The need to start early and stick to a regular investment schedule is significant. While Rs 1 lakh in annual average mutual fund returns may seem out of reach now, you will get there faster than you think through the power of compounding and time in the market. The journey begins with a single step, so start investing in mutual funds today to make your money work as hard as you do.
What are mutual fund investments and how do they work?
Mutual funds are professionally managed investment funds that pool money from many investors to purchase securities like stocks, bonds and short-term debt.
When you invest in a mutual fund, your money is combined with funds from other investors to create a larger, diversified portfolio. A portfolio manager uses the pooled funds to buy and sell securities according to the fund’s investment objective.
There are several types of mutual funds to choose from based on your financial goals, risk tolerance and time horizon:
- Equity or stock funds invest primarily in shares of publicly traded companies. They aim for long-term mutual fund growth but also higher risk.
- Bonds or fixed-income funds invest in government and corporate bonds. They aim for a steady income and lower risk.
- Money market funds invest in short-term debt for stability and liquidity. They aim to preserve capital with little risk.
How much can you earn by investing Rs 10,000 in mutual funds?
To earn Rs 1,00,000 annually from an initial investment of Rs 10,000 in mutual funds, you will need to choose funds to provide high returns over the long term.
The stock market has generated around 7-10% annual returns after adjusting for inflation. Investing in equity mutual funds focused on the stock market can potentially earn similar returns.
For instance –
- If you invest Rs 10,000 and earn an average annual return of 10% over 10 years, your investment could grow to around Rs 25,900.
- At 15%, annual returns over 10 years, the same initial investment could grow to around Rs 40,900.
- With an average 20% return over 10 years, Rs 10,000 could grow to Rs 67,300. You would need to invest around Rs 3 lakh initially at this rate of return to reach Rs 1 lakh in annual earnings after 10 years.
- At 25% average annual returns over 10 years, Rs 10,000 would grow to Rs 1.7 lakhs. An initial investment of around Rs 60,000 could potentially provide Rs 1 lakh in annual earnings after 10 years at this higher rate of return.
Bottom line
Starting small with just Rs 10,000 and investing regularly in a diversified portfolio of funds focused on growth and income can help you earn good returns over time. The power of compounding returns and utilising tools like mutual fund calculators in India, the market will work in your favour. You can achieve great success investing in mutual funds with discipline and patience.
Also Read: Personal Finance Planning and Management
