Building Savings Fund: Saving money is on everyone’s mind these days. Amidst rising expenses and needs, everyone desires to invest in avenues that offer substantial returns. If you wish to accumulate a significant corpus, here is a strategy for you. Compounding plays the most crucial role in transforming small investments into a large fund. Read on to understand in detail how you can build a substantial fund through investment.
Learn How to Start Investing
First, it is important to understand that a fund of ₹19 lakh can be created by saving just ₹33 a day. This might sound surprising, but the magic of compounding makes it possible. Saving ₹33 daily results in a monthly accumulation of ₹1,000. You need to invest this amount in a mutual fund equity scheme.
Invest for the Long Term
When you invest ₹1,000 monthly in a mutual fund via a Systematic Investment Plan (SIP), you earn returns not only on your principal amount but also on the returns themselves. You simply need to allow time for this money to grow. The longer you continue this monthly investment of ₹1,000, the larger the fund you will build. You can sustain this ₹1,000 monthly investment over a long period—such as 15, 20, or 25 years.
No Loss from Market Volatility
A key advantage is that long-term investing mitigates the risk associated with market volatility. Investing a fixed amount on a specific date each month offers the benefit of ‘Rupee Cost Averaging.’ When the market falls, you acquire more mutual fund units, and when the market rises, fewer units are allotted. Over the long term, this averages out the cost of purchasing your units. Here is a quick look at the full calculation.
Another key advantage is that having a ₹1,000 SIP deducted at the start of the month curbs unnecessary spending and turns regular saving into a habit. If an investor starts a monthly SIP of ₹1,000 and earns an average annual return of 12%, their wealth could grow as follows over time:
For 15 years: The total investment would be ₹1.8 lakh. This amount could grow to approximately ₹5 lakh over the 15 years.
For 25 years: The total investment would be ₹3 lakh, but thanks to the magic of compounding, it could grow to around ₹19 lakh over 25 years.
