A lump sum investment in a mutual fund scheme could offer a strong head start for long-term wealth creation. But both investment value and time play a crucial role in building a sizeable corpus. Instead of focusing on market timing, staying invested over a longer tenure is crucial for maximising returns. Investors who remain invested through market cycles are more likely to achieve long-term wealth and benefit from the power of compounding.
During periods of uncertainty, many investors react emotionally and fail to stay invested. However, understanding risks, asset allocation and patience help in creating wealth.
A lump sum, if invested wisely and left untouched for years, could be helpful in building a substantial corpus due to the power of compounding. Past trends have shown that discipline has helped many investors stay consistent and allow time to reward them.
For instance, if an investor seeks to set aside Rs 20 lakh in a lump sum investment, they may be able to benefit from disciplined habits. The key is to stay consistent and choose the right asset.
Traditionally, mutual funds have outperformed gold and other assets and are considered a good option for a long-term investment horizon. If one invests Rs 20 lakh in mutual funds with a long-term horizon, staying invested for longer periods can help generate higher returns through compounding.
Here's How:
Investment amount: Rs 20,00,000
Investment duration:10 years
Expected rate of return: 12%
Estimated returns: Rs 42,11,696
Total value: Rs 62,11,696
Based on historical return trends, calculations suggest that Rs 20 lakh invested in mutual funds over 10 years can potentially triple in value. However, what could be surprising for many investors is that if the investment period is extended for another 10 years, the fund could potentially grow nearly 10 times.
Let's see how an extended tenure helps to give substantial returns:
Investment amount: Rs 20,00,000
Investment duration: 20 years
Expected rate of return: 12%
Estimated returns: Rs 1,72,92,586
Total value: Rs 1,92,92,586
What To Consider Before Such Huge Lump Sum Investments:
Large value investments into a lump sum mutual fund scheme should be carefully considered. This is mainly because mutual fund investments are never guaranteed. While these investment tools have the potential for higher returns, they are influenced by factors like the global economy or wars. As a result, investors should carefully weigh what percentage of their portfolio should comprise a lump sum investment.
Since the investment amount is high, a lump sum must be given sufficient time to benefit from the power of compounding. This is why planning near- and medium-term finances is important. Exiting a lump sum investment in a shorter duration may impact growth potential and reduce the overall returns.
Due to these factors, investors are advised to consult a financial expert before making significant lump-sum investments. Professional guidance can help plan effective investment strategies to minimise risks and maximise returns.
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