Investing Rs 1 lakh a year, whether as a one-time contribution or through a SIP in mutual funds, is a commitment that many salaried or self-employed individuals can reasonably manage. This adds up to a total investment of Rs 15 lakh over 15 years.
Choosing the right investment instrument could be crucial for building a large corpus over a long-term horizon of 15 years by investing Rs 1 lakh per annum. Generally, investors prefer mutual fund systematic investment plans (SIPs) for wealth accumulation as they give higher returns compared to traditional instruments like gold, fixed deposits (FDs) and Public Provident Fund (PPF), among others.
Let's find out how an investment of Rs 1 lakh per year in different assets could grow over a tenure of 15 years.
Choosing The Right Investment
Over a long-term horizon of 10 to 15 years, the average annualised return for equity-oriented mutual funds has been around 12%, as per industry trends. Mutual fund SIPs could be a suitable choice over a 15-year investment horizon for investors looking for higher returns. SIPs offer comparatively higher returns than traditional instruments due to the power of compounding and market-linked gains.
Apart from mutual funds, if you are planning for a 15-year investment tenure, diversification of investment across instruments such as the PPF and gold could also help to minimise risks, while ensuring stable returns. Ultimately, the decision should be based on your risk appetite and long-term financial goals.
Rs 1 Lakh Yearly SIP
Tenure: 15 years
SIP investment: Rs 1 lakh yearly
Expected rate of return: 12% per annum
Invested amount: Rs 15 lakh
Estimated returns: Rs 26.75 lakh
Total value: Rs 41.75 lakh
Rs 1 Lakh Yearly In PPF
Tenure: 15 years
Yearly investment: Rs 1 lakh
Expected rate of return: 7.1% per annum
Invested amount: Rs 15 lakh
Estimated returns: Rs 12.12 lakh
Maturity value: Rs 27.12 lakh
Gold
Tenure: 15 years
Investment Amount (yearly): Rs 1 lakh
Expected returns: 10% per annum
Invested amount: Rs 15 lakh
Estimated returns: Rs 19.94 lakh
Maturity value: Rs 34.94 lakh
As the comparison shows, mutual funds are expected to offer more attractive returns over a 15-year period, primarily because of the power of compounding.
It's important to note that mutual fund SIPs are linked to the market and thus carry a greater risk, with no guarantee of return. Gold, too, does not offer assured returns, but it is generally considered safer than equity mutual funds. If your priority is safety, then PPF could be the best option. Though the maturity value is lower, the capital is secure.
In any case, it will be a sensible step to consult a financial expert before any major investment to plan an effective strategy for your long-term goals.
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