Now, aiming for ₹1 crore in 5-6 years is a sweet proposition but also means your investments must generate a significant rate of return. Let’s break down the numbers: if you invest ₹1 lakh per month, you’re investing ₹12 lakhs per year. In 5 years, that’s ₹60 lakhs, and in 6 years, it’s ₹72 lakhs.
To reach the goal of ₹1 crore in 5 years, your investments need an expected Compound Annual Growth Rate (CAGR) of around 11%, assuming the returns compound annually. If you’re looking at a 6-year horizon, the required CAGR drops to roughly 7%.
However, reaching these return rates consistently is quite challenging, particularly in volatile markets. Investments in small-cap and mid-cap funds can offer higher returns, but they also carry higher risk.
Also, this estimate assumes that the returns are compounded annually, which may not always be the case. The actual returns could be lower due to market volatility or other factors.
Remember that while it’s good to aim high, it’s also important to keep your expectations realistic. As the wise Warren Buffet once said, “The stock market is a device for transferring money from the impatient to the patient.” So, maintaining a disciplined investment approach and having patience are key.
Typically, equity mutual funds are the go-to options for such high-return objectives. But here’s the thing, not all equity funds are the same. They come in different shapes and sizes, much like the diverse array of Indian sweets, each with its unique taste and texture.
- Large-Cap Funds: These funds invest in big, well-established companies, akin to the ever-popular Gulab Jamun, known for its consistency and stability. These funds might not offer very high returns, but they are less volatile.
- Mid-Cap Funds: Mid-cap funds, on the other hand, are like Jalebis. They can be very sweet (high returns) but can sometimes be a bit too much (higher risk).
- Small-Cap Funds: Small-cap funds are like the adventurous Kaju Katli. They can provide exciting returns, but they’re also subject to higher volatility.
- Multi-Cap Funds: Multi-cap funds have a mix of all of these. They’re like a mixed sweet box, offering a bit of everything.
- Debt Funds: Use these to rebalance and move away from equity as you approach your goal’s time frame.
Another important aspect is to regularly review and rebalance your portfolio. This is akin to adjusting your cooking flame to get your dish just right. Now, if all these details about mutual funds seem like a complex recipe to you, don’t worry. That’s why we at Jama Wealth are here. We can help you cook up the perfect investment plan that suits your taste, considering your financial goals, risk appetite, and investment timeline.
