It is important for investors to choose the right wealth creation options that align with their financial goals, risk profile, and investment horizon. Investors should diversify their investments across different asset classes and sectors to minimize risks and maximize returns. Let’s take a look at some of the best investment options
1. Equity Mutual Funds: Equity mutual funds are a popular wealth creation option for investors. These funds invest in stocks of companies across various sectors and have the potential to generate higher returns over the long term. However, they also involve higher risks compared to other investment options.
2. Debt Mutual Funds: Debt mutual funds invest in fixed-income securities such as bonds, debentures, and government securities. These funds are relatively less risky compared to equity funds and are a good option for investors looking for regular income and capital preservation.
3. Index Funds: Index funds are passive investment funds that track a specific index such as Nifty 50 or BSE Sensex. These funds aim to replicate the performance of the underlying index and can be a good option for investors looking for low-cost investment options.
4. Real Estate: Real estate is another popular wealth creation option that has the potential to generate significant returns over the long term. However, investing in real estate requires a significant amount of capital and involves higher risks compared to other investment options.
5. Gold: Gold is a popular investment option for investors looking for diversification and a hedge against inflation. Gold can be invested in physical form or through gold ETFs (Exchange Traded Funds) or gold mutual funds.
Wealth creation through Systematic Investment Plans (SIPs ) is a popular investment strategy that involves investing a fixed amount of money at regular intervals in a mutual fund scheme. SIP is an easy and disciplined way of investing, which allows investors to accumulate wealth over a long period of time.
Dharmendra Kumaar Pandey, Founder and CEO of BigWallet Prime Wealth LLP.
Here are some steps to create wealth through SIP:
- Choose a suitable mutual fund: Investors should choose a mutual fund scheme that aligns with their investment goals, risk appetite, and investment horizon. It is advisable to invest in diversified equity funds, which have the potential to generate higher returns in the long run.
- Decide on the investment amount: Investors should decide on the investment amount based on their financial goals and monthly budget. They can start with a small amount and gradually increase it over time.
- Set up a SIP: Investors can set up a SIP with their mutual fund provider
Benefits:
1. Long-term wealth creation: SIPs are a long-term investment option that allows investors to accumulate wealth over a period of time. According to data from the Association of Mutual Funds in India (AMFI), the average annual return of equity mutual funds (which are commonly used for SIPs) over a 10-year period is around 12%.
2. Power of compounding: One of the key benefits of SIPs is the power of compounding. By investing a fixed amount regularly over a long period of time, investors can benefit from the compounding effect, which can significantly increase their wealth. For example, if an investor invests Rs. 5,000 per month in an equity mutual fund with an annual return of 12%, they can accumulate around Rs. 1.7 crore in 25 years.
3. Rupee-cost averaging: SIPs also allow investors to benefit from rupee-cost averaging, which means that they buy more units when prices are low and fewer units when prices are high. This helps in reducing the overall cost of investment and provides a cushion against market volatility. For example, if an investor invests Rs. 5,000 per month in an equity mutual fund and the NAV (Net Asset Value) is Rs. 100 in the first month and Rs. 120 in the second month, they will get more units in the first month and fewer units in the second month.
4. Diversification: SIPs also provide investors with the opportunity to diversify their portfolio by investing in a variety of asset classes and sectors. This helps in reducing the overall risk of the portfolio and provides better returns over the long term. For example, an investor can invest in equity mutual funds, debt mutual funds, gold funds, and international funds through SIPs.
5. Tax benefits: SIP in mutual funds also offers tax benefits under Section 80C of the Income Tax Act, 1961. You can claim a deduction of up to Rs. 1.5 lakh per annum on your taxable income by investing in ELSS mutual funds through SIP.
6. Convenience: SIP is a convenient way to invest as you can automate your investments and schedule them as per your convenience. This helps to ensure that you invest regularly and systematically, without having to worry about timing the market.
7. Benefit of time: Starting early with SIP gives you the benefit of time, which is a critical factor in wealth creation. The earlier you start, the longer your money has to grow, and the more significant the impact of compounding. Even small amounts invested regularly can become substantial over time, thanks to the power of compounding.
8. Lower investment amount: Starting early also means that you can start with a smaller investment amount. This makes it easier for you to manage your finances and build your investments gradually.
9. Flexibility: Starting early with SIP also gives you the flexibility to change your investment strategy as your financial goals change. You can switch between different mutual funds or asset classes based on your risk appetite and investment horizon.
10. Goal-based investing: Early investment through SIP allows you to plan your investments based on specific financial goals. This helps you to stay focused on your goals and work towards achieving them systematically.
11. Emotional stability: Starting early with SIP also helps you to develop emotional stability when it comes to investing. You learn to stay invested through market ups and downs and avoid making emotional decisions that can impact your long-term financial goals.
12. Professional management: Mutual funds are managed by experienced fund managers who have the expertise to select the right securities for the portfolio. They conduct research and analysis to identify the best investment opportunities.
Note: This is a partnered post authored by Dharmendra Kumaar Pandey, Founder and CEO of BigWallet Prime Wealth LLP. The author can be reached on dharmendra@thebigwallet.in.
