A long-term investment strategy is a crucial component of a well-balanced financial portfolio. It helps minimise risk while allowing wealth to grow through the power of compounding. Depending on their capacity and future goals, investors typically allocate either small or large amounts. While mutual funds allow a large upfront investment through a lump sum, Systematic Investment Plans (SIPs) enable wealth creation gradually by investing smaller amounts each month.
Investors can also diversify lump sum allocations across multiple assets such as mutual funds, gold and fixed deposits (FDs) to reduce risk while aiming for steady returns. For those with moderate to high risk appetites, mutual fund lump sum investments may be suitable. Conversely, conservative investors may prefer gold, fixed deposits and other traditional schemes.
Over a long-term horizon, lump sum investments can be rewarding, though returns depend on the chosen asset class. Assuming an investor deploys a lump sum of Rs 1.25 lakh today until 2040, here is how it could potentially grow over a 15-year period.
Investing Rs 1.25 Lakh in Mutual Funds
Investment amount: Rs 1,25,000
Duration: 15 years
Expected rate of return: 12%
Estimated returns: Rs 5,59,195
Total value: Rs 6,84,195
Investing Rs 1.25 Lakh in Gold
Investment amount: Rs 1,25,000
Duration: 15 years
Expected rate of return: 10%
Estimated returns: Rs 3,97,156
Total value: Rs 5,22,156
Rs 1.25 Lakh Lump Sum in a Fixed Deposit
Investment amount: Rs 1,25,000
Duration: 15 years
Expected rate of return: 7%
Estimated returns: Rs 2,28,977
Total value: Rs 3,53,977
These three scenarios for the same lump sum amount highlight the variation in potential returns across asset classes. A mutual fund lump sum of Rs 1.25 lakh is estimated to grow more than five times over 15 years at a 12% assumed annual return. The same amount invested in gold could grow to Rs 5.22 lakh, while an FD may nearly triple over the same period.
However, these calculations are indicative and based on historical trends. Investors should assess risk factors, expected returns and personal financial goals carefully before committing to any long-term investment.
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