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6 Tips For Wealth Creation With Mutual Funds In 2024

Here’s a scenario for you.

You are 25 years old, and you decide to start investing ₹5,000 every month using SIPs, and continue doing this every month until you’re 60. So, for another 35 years. Just that tiny investment amount will accumulate over time, and at 60, you are set up to have a total amount of ₹1,91,41,384 with you. Over 1.9 crore – and do you know how much you have invested in the same time period? Just ₹21 lakhs. So, for a ₹21 lakh investment, you have created wealth valued at over ₹1.7 crores!

Are your minds exploding right about now? Good. This means we’ve got your attention as we dive into our topic for the day – wealth creation!

As a young investor, it is highly likely that your foray into the world of investing will start with something simple – like mutual funds. So, we thought we’d share some wealth creation tips with you today, that can help you realize important long-term goals for yourself. Keep in mind that while these aren’t necessarily rules of wealth creation, they are certainly important guidelines that need to be accounted for in your wealth creation plan, that you should definitely keep in mind as you start planning your investments for 2024!

  1. The Early Bird Gets the Worm – Starting as early as possible, and staying invested for as long as possible are the two foundational pillars of wealth creation using mutual funds. If you were wondering earlier how an investment of ₹21 lakh results in a capital of ₹1.9 crores? It is because of compounding – which is a process where your interest earns interest for you too, and compounding is the most effective when you have a long investment horizon. So, if you are in your 20s, then keep in mind that starting early allows you to harness the incredible wealth-building tool called compound interest, and even the most modest contributions can grow significantly over time.

  2. Variety is the Spice of Life – Diversification is important to help mitigate risk and gain stable returns over time. When we say diversification, we don’t simply mean diversification across types of investments, but also exploring various asset classes within just mutual funds as well. Any and every form of diversification is good when you are vying for wealth creation through mutual fund investing – you can opt for equity, debt, or hybrid funds, depending on your goals for investing.

  3. Trust the Process – In this case, we mean the Systematic Investment Plan (SIP) process. Let’s go back to our opening scenario again. Investing ₹5,000 a month through SIPs helps with wealth creation of over ₹1.9 crores. And while compounding has an important role to play in this, SIPs specifically also leverage the power of rupee cost averaging to enable big gains. Rupee cost averaging in SIPs dictates that you invest a fixed amount routinely, regardless of mutual fund values month on month. This way the same purchasing power will sometimes buy you more funds, and sometimes buy you fewer funds – averaging out your purchases over time. (PS – This might need some more insights! You can read more about rupee cost averaging here.)

  4. Knowledge is Power – Financial literacy is a fundamental aspect of successful wealth creation (or anything money-related really!). You have to take advantage of resources like books, online courses, financial news, and expert advice to enhance your understanding of the financial world. It is important that you find out as much as you can about various mutual fund options out there before you invest, or start diversifying your portfolio. For instance, it’s good if you’re regularly soaking up the content shared on Deciml’s Wise Up. This knowledge is like the armor that equips you to make informed decisions, understand risk, and select investments that align with your financial goals. 

  5. Keep Your Eye on the Ball – Without a set goal… You’re going to just be flailing about your investment journey, and we don’t want that. Goals lend direction to your investments, and when you feel that your motivation to keep investing is taking a hit, it is these goals that will keep you on track! Whether your goals involve buying a home, funding your children’s education, or retiring comfortably; setting clear and achievable goals helps you determine how much you need to invest in mutual funds, and for how long, offering you clarity in your journey to wealth creation.

  6. Investing Helps Those, Who Help Themselves – Debt can be a major impediment to wealth creation if not managed wisely. Clearing your debt is one of the most important parts of a secure financial future. Don’t let debt be a factor that holds you back, and focus on paying off loans as early as you possibly can. It is prudent to eliminate any interest payments so that they aren’t eating into your interest gains. Debt management is something that only you can do for yourself – so better not to dilly-dally, and get on with it!

(PS – Also… Avoid impulsive spending. As a rule!)

The bottom line is this – we all want to make decisions that can facilitate wealth creation. But without these six guidelines, wealth creation will remain a distant dream! So, make sure that any strategy you are adopting for wealth creation, especially using mutual funds, is rooted in these guidelines, allowing you to meet your long-term financial goals.

 

FAQs

  • What is wealth creation?

Wealth creation refers to the process of making money for important milestones in life, using the various investment instruments available to you in the financial market.

  • What are the best books on wealth creation?

Some popular books that can educate you about wealth creation include – ‘Rich Dad, Poor Dad’ by Robert Kiyosaki, ‘Psychology of Money’ by Morgan Housel, and ‘The Millionaire Mind’ by Thomas J. Stanley.

  • Is there a wealth creation calculator online?

You can use a simple SIP calculator online to chart your wealth creation trajectory over time. 

  • How can SIPs in mutual funds help with wealth creation?

SIPs leverage the rules of compounding and rupee cost averaging – both of which are useful tools in building wealth, if you are determined to stay invested for a long period of time.

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