There is no elevator to wealth creation, you have to take the stairs
Last Updated : Feb. 26, 2019, 12:34 p.m.
Many a times we get carried away by the success achieved by our peers or by young achievers and want to replicate their path. We tend to think that all this has come easily as we miss the hard-work and the perseverance that has helped them reach there. Success need not be linked only to professional life; in fact someone who has managed to top a competitive exam or win a sports championship or become an award winning film-maker or developed a cutting edge product, all have achieved success in life. While most of us would love to fall in one of these categories, very few put in those extra hours and the commitment to become a perfectionist in the space they love.
This principle also applies to our investments as they too need perseverance and longevity to generate wealth in the long run. This may not necessarily apply to assured returns products where money grows at a pre-determined rate and results in a definite sum on maturity. However, with rising concerns about declining interest rates, investors are looking at other options which can help them consistently beat inflation as well as meet their life goals. Welcome to the world of market linked investment products where the returns are not assured but they have the potential to beat inflation and create wealth provided you are ready to follow the above principles of perseverance and longevity.
Mutual funds are one of the most versatile market linked products and offer the convenience of smaller ticket size of atleast Rs.500 per month as well as an option to invest regularly through systematic investment plans or SIPs. They also have the product width to suit every investor type as per their risk appetite and goal horizon. However, the disconnect with investors is that they try to use market linked products like mutual funds as short term investment vehicles to make quick returns and are left discontented if the actual returns are lower than expected.
The right approach with such investments is to go for the long haul by riding over multiple market cycles in order to experience the potential of higher returns. This is indicated by the SIP returns from equity mutual funds (represented by the CRISIL – AMFI Equity Fund Performance Index) over 5, 10 and 15 year periods as shown in the below table. You may also note that these returns are tax free as per current tax norms if the holding period is more than 1 year.
| Period | SIP End Date | Total Amount Invested @ Rs.10,000 per month | Market Value on SIP end date (Rs.) | Annualised SIP Returns (%) |
|---|---|---|---|---|
| 5-Years SIP | 30-Nov-2017 | 6,00,000 | 9,52,142 | 18.53 |
| 10-Years SIP | 30-Nov-2017 | 12,00,000 | 27,29,123 | 15.69 |
| 15-Years SIP | 30-Nov-2017 | 18,00,000 | 77,39,113 | 17.6 |
| 20-Years SIP | 30-Nov-2017 | 24,00,000 | 2,38,81,126 | 19.7 |
Source – CRISIL Mutual Fund Research Tool
Past performance may or may not be sustained in future
While there are many who would try to use the elevator to achieve their investment goals quickly, success may follow those who choose a slow but consistent approach to reach their goals via SIPs in mutual funds (#GoodEMI). So think again before you use the elevator, perhaps using the stairs may be better for both health and wealth !
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Information contained in this article is not a complete representation of every material fact and is for informational purposes only. The recipient is advised to consult its advisor/ tax consultant prior to arriving at any investment decision.