Mutual Funds: How Lump Sum Investment Of Rs 5 Lakh Will Grow In 20 Years

Mutual funds are becoming a preferred choice for investors due to the wide range of plans, flexible tenures and the choice over other asset classes. For investors planning for both short-term and long-term financial goals, mutual funds offer several options. While many investors prefer the steady, disciplined route of Systematic Investment Plans (SIPs), others opt for the lump sum investment.

The lump sum investments could be particularly effective during market dips and it could be suitable for a long-term horizon.

Financial experts often highlight the importance of staying invested in mutual funds for the long term, as the compounding interest works best when your money gets an extended period to grow. Even a one-time lump sum investment in a mutual fund may grow significantly over time.

For instance, an amount like Rs 5 lakh, if invested strategically in mutual funds, has the potential to generate significant returns over the years. The calculations show that for a 20-year period, the amount can turn nearly 10 times its initial value.

Let’s take a look at how a lump sum investment of Rs 5 lakh in mutual funds could grow into a sizable corpus fund in 20 years.

A lump sum investment of Rs 5 lakh in mutual funds for 20 years may grow into nearly 10x at an interest rate of 12% per annum.

Let’s see the details:

Initial invested amount: Rs 5 lakh

Assumed interest rate: 12%

Estimated returns: Rs 43.23 lakh

Final corpus value: Rs 48.23 lakh

Similarly, at an annual interest rate of 14% per annum, the corpus would grow into the following amount:

Initial invested amount: Rs 5 lakh

Estimated returns: Rs 63.71 lakh

Final corpus value: Rs 68.71 lakh

It is important to note that this amount is not adjusted for inflation. Moreover, while mutual funds can offer higher returns compared to traditional savings instruments, one should keep their expectations realistic. For example, the returns may vary depending on the types of mutual funds you choose and the asset class, like equity, debt, or hybrid schemes.  

Though equity funds offer higher returns, they also come with more risk compared to debt funds. Market conditions can also affect the overall return in a mutual fund scheme. Hence, before investing in mutual funds, it’s important to consider your risk appetite, investment horizon and financial goals.

Financial experts also recommend diversifying your investment portfolio across different asset classes in order to safeguard your wealth from market volatility.