For many investors in India, building their first Rs 10 lakh corpus is a major financial milestone. It not only requires years of disciplined investment but also smart money management over a long-term horizon to reach this target. Now, the real dilemma begins when you want to build a large corpus with Rs 10 lakh in hand.
It could be confusing to choose the right investment instruments for safety, growth, and long-term prosperity. However, a smart investment strategy aligned to your financial goals could be crucial to long-term wealth accumulation.
Let's see how you can invest Rs 10 lakh in effective ways to maximise returns while minimising risks. Before finalising investment instruments, it's important to assess your risk appetite, investment horizon and financial targets.
Match Investments to Your Time Horizon
The investment duration plays an important role in overall returns. A longer tenure generally fetches higher returns due to the power of compounding. So, it's crucial to evaluate investment tenure while deciding where you want to put your hard-earned money. Here are a few factors you need to consider for smart investing:
Less than 1 year: Investors can go for liquid funds or high-interest savings, since safety and liquidity are the key here. This could be a suitable option for investors with a low-risk appetite.
Between 1 and 3 years: Investors can opt for short-duration debt funds. These instruments come with low risk and offer stable returns.
3–5 years: Conservative hybrid or equity savings funds are highly recommended for a balanced mix of equity and debt.
5–7 years: Generally, equity instruments are considered more suitable for this tenure. Investors can opt for aggressive hybrid or flexi-cap funds for higher returns compared to traditional investment instruments.
Over 7 years: One can invest in mid-cap and small-cap funds. It could be a suitable option for investors eyeing higher returns. However, it's important to note that such investments come with higher risks.
A key takeaway here is that a longer horizon often helps to reap the benefits of equity investments due to the power of compounding. When opting for equity instruments, it's advisable to align your investments with a long-term outlook.
Don't Invest The Lump Sum All At Once
Investing the entire Rs 10 lakh into equities at once can expose you to market timing risks. To understand this scenario, investors can take the example of the COVID-19 pandemic. For instance, an investment of Rs 10 lakh in the Sensex index fund in January 2020, before the COVID-19 crash, may have dipped by 30% by the end of March that year, according to Value Research.
Instead, it's advisable to stagger your investments through a systematic transfer plan (STP) to leverage investments in different market cycles.
A systematic transfer plan in mutual funds allows transferring a fixed portion of your investments from a low-risk fund to a high-risk fund. For instance, you can park the money in a liquid fund and gradually transfer it into equity or hybrid funds over 6–36 months.
Also Read: Investing A Rs 10-Lakh Inheritance: SIP, FD Or Stocks — What Maximises Returns?
The secret lies in spreading the investments over different market cycles to ensure higher returns while minimising risks.
Stay The Course
One of the major mistakes that investors usually make is exiting too soon when markets dip. They need to understand that equity markets are inherently volatile, but long-term compounding rewards patience. So, the key to higher rewards is consistency.
You can even choose a systematic investment plan (SIP) to spread your investments over a longer tenure. Despite market fluctuations, consistency over a long-term horizon often helps to generate higher returns due to the power of compounding and rupee cost averaging.
It's advisable to avoid making emotional decisions. Reacting to short-term fluctuations often leads to missed opportunities.
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To conclude, there is no fixed formula to build a large corpus with an investment of Rs 10 lakh. A diversified strategy and financial discipline over a long-term horizon could be helpful to reach your financial goals conveniently.
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