Amassing a crore worth of corpus is a dream for most investors. But it can be challenging, especially in a short time frame such as five years. At the same time, it is not impossible either. Proper planning, research and some luck and help you achieve your dream corpus. Let us see how you can amass a corpus of Rs.1 crore in five years through mutual funds.
Systematic investment plans
What can greatly help you plan is systematic investment plans (SIP). Mutual funds are available for investment in two different ways. The first is the lump sum, where a larger, one-time investment is possible. The second option is the Systematic Investment Plan, or SIP, which lets you set a monthly investment date and amount and stick to it.
With SIP, you authorize the bank to automatically invest a set amount of money into your scheme on a recurring, periodic basis. Daily, weekly, monthly, or yearly intervals are all possible. Popular SIPs are those that occur monthly, as this makes it simpler to coordinate with your pay cycle and budget accordingly.
To create a corpus, SIP is a wise option rather than investing a corpus all at once. The autopay feature of SIP can instil a sense of discipline in your investment.
But SIPs are not investment options but rather an easier method of investing in mutual funds. Which mutual fund will be better for your goal? Let us see.
Equity mutual funds
Equity mutual funds are an investment option with the highest growth potential. Hence, there is no doubt that equity funds are the most suitable option here. These plans allow you to put your money in the stocks of several companies traded on stock exchanges. They provide investors with exposure to a large number of companies operating in a variety of industries. Investors can lessen their exposure to risk and benefit from expanding a more diverse range of enterprises by spreading their holdings across multiple organizations.
Equity mutual funds are broadly divided into three based on the market cap of the companies they invest in. Let us see which market cap group suits your goal.
Mutual funds classified as large-cap invest a sizable amount of their AUM in the common stock of companies with a high market capitalization. Large-cap funds are attractive investments because of the stability they provide. Since these funds prioritize investing in companies with strong fundamentals and capable leadership, their shareholders enjoy lower volatility and a more reliable dividend stream, even in a down market.
Mid-cap funds are pools of capital specifically designed to invest in mid-sized companies. Due to their focus on growth possibilities, mid-cap companies typically outperform their larger-cap counterparts when the market is doing well. On the downside, smaller-cap funds are more volatile than large-cap funds.
Mutual funds catering to small and medium investors typically hold stocks of companies with smaller market capitalizations. Due to their strong returns, small-cap mutual funds have become popular investments.
What should you choose?
Given that five years is not short but, at the same time, not long term as well, you may choose to invest in a mix of large-cap and mid-cap funds if you are more conservative. At the same time, you are aggressive, you may choose a mix of all three market caps.
The SIP calculator is a handy tool to help you plan here. An online SIP calculator is a useful financial tool for estimating future profits from a Systematic Investment Plan. The calculator also provides information on the monthly investment amount necessary to achieve the desired result. Ensure you make use of the SIP calculator as well for fool-proof planning.