When a person should start investing in Mutual Fund:
There is no specific time or age to start investing. Make investing has a habit, it creates you wealth over longer period of time
Who should invest in Mutual Fund:
Investing early in mid 20's or beginning of 30's has better returns due to long investment period and they can take higher risk to investment majority of the fund in equity oriented fund for better returns.
Why should we invest in Mutual Fund:
There are many reasons why one should invest in Mutual Fund, Here are the commonly known reasons,
1. Managed by professionals
2. Better Tax for Investors than Fixed Deposit
3. Better Flexibility (Invested Money/even part of the Money can be withdrawn at any point in time)
4. Diversification
5. Beats Inflation
6. Makes savings as an habit
But, Is it still necessary to take risk in Investing in Mutual Fund?
Here is good motivation with an example,
*TDS are not subtracted in RD and MF for above example, still MF has less tax rate than Recurring Deposit.
Mutual Fund vs Recurring Deposit in 5 years:
As we can see above table, by taking risk in Mutual Fund for a period of 5 years, we have an advantage of only around Rs. 70,000 approximately. I personally see there is no need to take this risk for this profit for a period of 5 years. It is better to invest in Recurring Deposit and keep calm.
Mutual Fund vs Recurring Deposit in 10 years:
As the investment period extends to 10 years, we can see an advantage of Rs. 4,29,000 approximately, which is a good returns compared to recurring deposit.
Mutual Fund vs Recurring Deposit in 20 years:
Now, with 20 years of investment period, we see a big advantage of Rs. 38,29,000. This is a good motivation to take risk and invest for a longer period in Mutual Fund. Considering market fluctuations, we get minimum of Rs. 30,00,000 advantage for 20 year period
Note: above example more suitable for small investors of Rs. 5k to 10k per month.
Please note that, taking risk by investing all the capital is not good and at the same time, not taking risk for smaller amount of money for over a period of time is not good.
We talk lot about risk in mutual fund, in coming blogs, we will see how to reduce the risk and take advantage of mutual fund, detailed information on what is mutual fund, how to choose a fund and how to start investing.
If interested, do read previous post related personal finance
DISCLAIMER:
1. I am not a professional Financial Adviser, please discuss with your Financial Adviser before investing.
2. I maybe wrong, your comments are welcome, this helps us to improve and better knowledge on personal finance.
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