I have Rs 2 lakh in the bank which I don't need as I have sufficient other reserves for emergencies. Considering the stock market is going down, should I invest in mutual funds now? How much can I expect after 10 years if I invest in mutual funds?
— Neeraj Dhawan
Investing in equity mutual funds through a systematic investment plan (SIP) for the long-term is the right way to achieve long-term wealth creation. However, you should invest in mutual funds only if you understand the risks associated with mutual fund investing and not because the markets are down or the net asset value (NAV) is low. You appear new to investing and hence should start investing in a balanced fund such as HDFC Balanced or HDFC Prudence.
Once you have understood and experienced mutual fund investing this way, you can consider building a portfolio with a large-cap fund such as DSPBR Top 100 or ICICI Prudential Focused Bluechip.
If you invest Rs 5,000 a month for the next 10 years and the investment earns an annualised 12 per cent return; you will have a corpus of Rs 11.61 lakh, which should give you an indication on the benefits of systematic investments and power of compounding. How much you actually earn over a 10-year period depends on the fund you invest in and its performance.
This article was originally published on September 16, 2011.
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