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Article: How Can Mutual Funds Help You Buy A Ferrari?

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By Mohit Garg, Co-Founder of www.moneyfront.in
Being
a millionaire is an aim every Rohan, Ram or Shyam can have now. Becoming a
crorepati (aka worth of 10 Million) doesn’t seem outside the realm of
possibility anymore. Why? Since we are talking about them in number let’s
explain it in them too. As of today, you start investing 15,000 rupees every
month and do so for the next 15 years. What do you end up with? A whopping 1
Crore 20 Lakhs. (Side note here: we are assuming a compound annual growth rate
of 15%). What does this make you? A crorepati. Getting the idea? So, today
instead of just aiming to be
simple crorepatis we give our goal a
visual and aim to be owners of a smokin’ red Ferrari 488 GTB or maybe a cool
blue Ferrari California T. How do we do it? By generating an alternative
revenue stream through Mutual Funds. Don’t let this addle your wits. Let us
explain.




What are mutual funds? Imagine there are 5 friends. Each has
100 rupees. We pool this money. Then we hand it over to a Mr.XYZ who manages
the pooled amount of 500 to make more money. Otherwise defined as “a pool of money from numerous investors who
wish to save or make money
” by investing it in various financial
instruments. Mutual funds are basically a way for the common guy (think you and
me) to own small pieces of the gigantic market. They are comparatively safe
investment options that give a huge return in the long term.
Pic courtesy: Livemint.com
A one-stop shop for almost all investment wishes, that’s
mutual funds. Building a nest egg for a child’s education or simply looking to
save on tax, pick any goal and yes that also includes buying a Ferrari and
mutual funds will turn out to be the best wealth creation vehicle, by far. Why?
They are easy to invest in. They are flexible. They are diverse therefore have
reduced risk. And because they are under strict regulations they are
transparent. The best part – withdrawals are damn easy.




You’re thinking ‘I am
no financial expert, how am I suppose to invest enough to be able to buy a
Ferrari?
’ That’s the beauty of mutual funds. You don’t have to keep track
of shares because the fund manager (remember the Mr. XYZ from above?) he will
be doing it for you. It is his job to be in the know-how, to follow the moolah.
So far, so good? Now we come to the part where you decide how Tony Stark aka
you are ready to dive into risks.
•   The ‘I
know my Iron Suit works but I will never skydive’
from this aeroplane: go
for debt funds. They have a very low-risk rate and will suit your low-risk
sensibilities. They give about 8% to 10% return annually.
•    The ‘I know my Iron Suit works and I might think
of skydiving’
from this aeroplane: try out balance funds. You will like
their moderate risk level. These can ideally give about 10% to 12% annualised
returns.
•    The ‘I know my Iron Suit works and I will
skydive’
from this aeroplane: equity funds are the way to go. Try staying
for a long term and you can anticipate about about 12% to 15% returns which are
respectable enough.
•    The ‘I know my Iron Suit might not work but I
will still skydive’
from this aeroplane: for people who tend to live
dangerously, sector based mutual funds are made for you. They are high risk;
therefore, can give a high return which is above the previous category.




Pick the one option that calls to your inner risk-taker and
then begin to invest in mutual funds. Now. The earlier you start, the fatter
your corpus will be. Start with just 10,000 rupees if you can’t spare 20,000,
but begin. Increase this amount every year with at least 10%. Stay invested for
a long time say 20 years, mutual funds tend to give higher returns in the long
term. If we take this as an actual example and assume a 12% rate of return you
will end up with a corpus of almost 2 Crores. That’s the power of compounding a
moderate amount can deliver over a long time period.

With mutual funds, a simple yet powerful tool of investment,
you can attain any goal and that Ferrari 488 GTB need not elude you.
About the Author








Mohit Gang is the
Co-Founder of www.moneyfront.in, an investment portal that offers Direct
Plans of Mutual Funds. Having worked with HSBC and Citibank, Mohit has over 12
years’ experience in the investment and banking industry.

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