Is it worth investing small amounts in mutual funds like Rs. 5000 per month?


Is it worth investing small amounts in mutual funds like Rs. 5000 per month?

A majority of young professionals who start their career with humble earnings usually spend all their money on living (rent) and food costs. They usually use the phrase " I am broke" at the end of the month. A major reason for the same is that they spend a lot on maintaining an out of reach lifestyle and think that they don't have lots of money to invest it. Well, that is where the fault lies. One needs to understand that the earlier you start investing the better it is gonna make your future financially free and that even small amounts like Rs.5000 per month will return you crores in the future.( keep in mind this assumption involves you investing the same Rs5000 even after years when you would have more disposable income and can invest even more than Rs.5000)

If you take the CAGR(Compounded annual growth rate) of Sensex, you will observe that the index has increased a modest 13% annually. Let us assume that the you invested in the index fund, which gave a CAGR of 13%. Now in this scenario as well observe the corpus money you can build with the small investment of Rs.5000/month in the below table.
As you can clearly see the power of compounding works it magic in the later years quite well. Your interest income becomes quite high. Now you might wonder how much was the total amount you invested in 30 years. See for yourself.


Surprising right, you have invested only 18 lakhs and have reaped around 2 crores of interest income from the same. Think about the scenario when you can actually increase the amount investable each year by some percentage.

So if you can bring a bit financial discipline in life, like dining one time less at a restaurant  each month and instead invest the same money in mutual funds(say Rs.500), you can get 17 lakhs of extra interest income in 30 years at an interest rate of 13% instead of losing the whole 1,80,000 in the 30 years. I don't think it's a lot to ask. Make smart decisions my readers, I know you can manage that.

Fact: If you would have invested Rs1000 in Netflix stock on 15 Jan 2007 you would be holding stocks worth Rs1,28,790 as on 2nd April,2020. So make wise decision, invest Rs.600 in Netflix stock each month or pay subscription cost of Rs600 to Netflix.

 Thanks for reading!
Please comment on any financial query you had like me to address. I will try to post something worthwhile.

Coming up Next: What is the importance of diversification in investment strategy?

Comments

  1. animeshApril 2, 2020 at 1:53 PM

    Well written.. and I really liked the way you drew my attention and made me stick and finish the entire article.

    ReplyDelete
    Replies
    1. Harsh Deep SrivastavaMay 16, 2020 at 7:36 AM

      That was the objective! Thanks for being a regular reader.

      Delete

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