An inheritance of Rs 10 lakh could help in financial stability if the amount is invested wisely. For many people, it could be a daunting task to choose right investment instrument for wealth accumulation. Many even leave the inheritance amount to lie idle in a savings account due to the confusion over how to invest it.
An investment strategy involving diversified assets, a long-term horizon and a thorough risk assessment could be helpful to maximise returns. The question here is where you should invest the inheritance amount: a systematic investment plan (SIP), fixed deposit (FD) or stocks?
Let's examine each option and how your investment of Rs 10 lakh could grow over the years.
Systematic Investment Plan (SIP)
Mutual fund SIPs allow investing small amounts at regular intervals, typically every month. Rather than investing the entire amount of Rs 10 lakh at once, you can split the investments into smaller amounts every month over a long-term tenure.
Historically, equity mutual funds in India have provided returns in the range of 10% to 14% per annum over the long term. However, it's important to note that the past performance of a mutual fund scheme is not an indicator of future returns.
Also Read: Rs 10 Crore In 30 Years? Here's The Monthly SIP You Need To Start With
Assuming a return of 12% per annum, the Rs 10 lakh inheritance in a diversified equity mutual fund could potentially grow substantially over a period of 10 years. Investing Rs 10 lakh over 10 years works out to Rs 1 lakh per year, or about Rs 8,334 per month. Here's how your SIP investment could potentially grow:
SIP amount: Rs 8,334
Investment duration: 10 years
Expected rate of return: 12%
Invested amount: Rs 10,00,080
Estimated returns: Rs 9,36,234
Total value: Rs 19,36,314
Fixed Deposit (FD)
Fixed deposits are one of the most secure investment choices. They provide safety for your investment as well as guaranteed returns. They are a good choice if you are looking for a secure investment with low risk.
Currently, most leading banks in India provide interest rates for fixed deposits ranging between 6.5% and 7.5%, depending on the term. Assuming an interest rate of 7%, here is how much your Rs 10 lakh would be worth in 10 years.
FD amount: Rs 10,00,000
Investment duration: 10 years
Expected rate of return: 7%
Invested amount: Rs 10,00,000
Estimated returns: Rs 10,01,597
Total value: Rs 20,01,597
Stocks
Stocks or shares are often preferred by investors with a high-risk appetite due to their potential for windfall gains. Compared to other investment instruments, equities or stocks offer higher returns due to various factors. In a favourable market condition, stock prices may soar significantly. However, stock market investments also come with high risk. Stock markets are volatile, and poor stock selection can result in the loss of capital. That is why investing in stocks requires research and discipline. It is more suitable for investors who are aware of market cycles and are ready to face market fluctuations.
What Maximises Returns?
Though stocks offer the highest return compared to other investment instruments, the success lies in a diversified portfolio. There is no fixed formula to earn returns on an investment of Rs 10 lakh. A combination of different assets like SIPs, FDs and stocks could be a suitable strategy to maximise returns, while minimising risks.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
