Wealth Creation

Create Long Term Wealth by Investing in Mutual Funds

Wealth creation for a secure future is the dream of every investor. However, not many do it successfully due to lack of expertise and sufficient knowledge. Although there are various approaches one can take towards wealth creation in the long run, the most practical and successful one is the mutual fund route.

Why Mutual Funds for Wealth Creation

Equity mutual funds are one of the great investment options for investors looking at wealth creation over the long term.

Wondering how? Read on.

Most investors looking for high returns on their portfolio often look towards stock markets. However, investing in the stock market requires a high tolerance for risk along with a robust understanding of markets and stocks.

Equity mutual funds, on the other hand, make a great option for investors looking at wealth creation as they bring the professional knowledge and expertise of the fund manager, making them a much safer option as compared to direct equity investment.

Let's understand this better with an example.

Mr. X wishes to create enough wealth to meet all his future financial goals. However, he keeps wondering about the most important question: how to beat inflation and generate the desired wealth over long periods?

Consider this.

At 5% inflation rate, an expense of Rs. 5,000 will become Rs. 20,000 in 30 years. For Mr. X, who is planning to build wealth and save for his retirement, generating returns that can beat this kind of yearly inflation seems really difficult if he does not choose his investment options wisely such as mutual funds.

In fact, the only asset class that has helped investors like Mr. X generate exceptional wealth over the long run is the equity mutual fund.

One of the best performing equity mutual funds in the last decade, has delivered a whopping return of 36% a year on a compounded basis.

So, if Mr. X had invested Rs. 2 lakhs in the scheme in the year 2001, his money would have grown to Rs. 44 lakhs at the present.

Leverage Mutual Funds for Wealth Creation

Going by the above example, if Mr. X decides to invest a modest sum of Rs. 1,000 per month till the age of his retirement in an equity mutual fund that offers a 12 per cent rate of return per year, his retirement corpus would look like the following when he retires:

Age at which investment is done by Mr. X Retirement corpus
20 97.93 lakhs
(Amount invested-4.8 lakhs)
30 30.80 lakhs
(Amount invested-3.6 lakhs)
40 9.19 lakhs
(Amount invested-2.4 lakhs)

It is quite clear from the above table that the longer you let your money work hard for you, the more money you take home.

Choosing Mutual Funds for Wealth Creation

There are a few important factors that you should keep in mind to create wealth. Some of the most important ones are:

  • Objective of the Investment
    First and foremost, the objective of the fund should be in sync with your (investor's) objective, wealth creation in this case, which would help you fulfil your financial goals much faster.
  • Past Performance of the Fund
    As a responsible investor, you need to carefully study the past performance of the fund you choose, especially during varied economic cycles.
  • Expense Ratio
    Another important factor to consider before choosing the right fund is the expense ratio. It consists of management fees, operating costs, and other asset-based administrative expenses incurred by the fund. Typically, the higher the expense ratio, the lesser the returns would be on the respective fund.
  • Expertise of the Fund Manager
    The experience and expertise of the fund manager play a pivotal role in defining the fund's performance in the long run. As the person responsible for managing the fund, the fund manager would be the one moving the capital towards assets who would have higher growth potential (and returns!) in future.

How SRE can help you to create wealth?

If you really wish to create long term wealth for future, remember to keep your monthly investment commitment intact as it can allow you to walk away with a large sum of money to fulfil all your financial dreams.

SRE is one of the market leaders in the field of financial planning that can systematically help you build long term wealth with mutual fund investments. With 30 years of rich experience in financial planning, we offer the expertise of certified financial planners and strong research benefit to all our clients with a client-first approach as our USP.