How To Make Rs. 5 Crore From Mutual Funds By Investing Only Rs. 16,229

Amassing a fortune of Rs. 5 crore is the dream of every investor.

However, amassing such a large sum of money appears to be an impossible task for a number of people who are earning a small monthly salary.

Compounding with mutual funds

Thankfully, the magic of compounding coupled with the convenience of investing in mutual funds can make this dream possible for even salaried employees earning small sums of money every month.

The principles of compounding are well explained in the embedded video by Mohnish Pabrai, a well known investor and founder of Pabrai Funds.

The video explains how investing small sums of money in a mutual fund and allowing it to compound over long periods of time can convert into a giant fortune.



At 24% CAGR, money doubles every three years – Rs. 10 lakh becomes Rs. 100 crore in 30 years

If money invested in a mutual fund compounds at a Compounded Annual Growth Rate (CAGR) of 24%, it doubles every three years.

In a period of 30 years, the small sum of Rs. 10 lakh becomes a colossal fortune of Rs. 100 crore.

This is why Albert Einstein, the great scientist, described compounding as the ‘Eight Wonder of the World’.

Best mutual funds

How to make Rs. 5 crore

In order to make Rs. 5 crore, we don’t have to earn a return of 24% from our investments in mutual funds.

It is sufficient if we earn a return of only 12%.

Earning a return of 12% is a relatively easy task for even an average mutual fund.

However, the pre-condition is that we must start our investments in the mutual funds at an early age.

Start investing in mutual funds from an early age

A young person aged 25 years has to invest only Rs. 16,229 every month for the next 30 years.

If he makes the investment through a systematic investment plan (SIP) of a mutual fund for thirty years and if the fund earns a modest return of 12%, he will have Rs. 5 crore by the time he is ready to retire at the age of 55 years.

Persons who are older than 25 years can also achieve their goal of having Rs. 5 crore in 30 years.

However, the requirement is that they will have to invest larger sums of money through the systematic investment plan (SIP) route of a mutual fund.

How much you need to save every month to accumulate Rs 5 crore

Years till retirement Expected annual return Monthly investment required
30 12.00% 16229
29 12.00% 18252
28 12.00% 20538
27 12.00% 23123
26 12.00% 26052
25 12.00% 29374
24 12.00% 33147
23 12.00% 37442
22 12.00% 42339
21 12.00% 47938
20 12.00% 54356

As the chart shows, a person aged 26 will have to invest Rs 18,252 per month.

As the person grows older, the sum required to be invested also increases.

That is why it is advisable to start investing in mutual funds from an early age.



Best mutual funds to invest in

Getting a CAGR return of 12% from a well managed mutual fund is not a difficult task.

Several mutual funds have comfortably generated a CAGR return of 20% over long periods of time and some have delivered a return even in excess of that.

The Financial Express has prepared a list of top-ten mutual funds and the returns generated by them:

1. L&T Emerging Businesses Fund

This small cap equity oriented mutual fund was launched in May 12, 2014. It has given a return of 26.97% since its launch.

Duration

Returns (Direct Mutual Funds)

1 Year

12.2%

3 Year

24.1%

5 Years

NA

Why should you go for this fund?

# Since its launch, the fund has consistently outperformed its benchmark S&P BSE Small Cap

# The expense ratio of the fund is 1.46%

# You can start at a minimum SIP of Rs 500

Expense ratio means the percentage of fund assets used to cover expenses like administrative, management, advertising etc. The lower the expense ratio, the better. Currently, an average expense ratio for actively-managed mutual funds is between 0.5% and 2.0%.

2. Principal Emerging Bluechip Fund

This is a large & mid cap-oriented fund which was launched in November 2008. The fund has given a return since launch of 23.78%.

Duration

Returns (Direct Mutual Funds)

1 Year

14.1%

3 Year

19.1%

5 Years

33.1%

Why should you opt for this fund?

# This is a 10-year old fund and hence it’s performance can be aptly judged

# The expense ratio of the fund is 1.3%

# It has consistently outperformed its benchmark NIFTY Large Midcap 250 TRI since its launch

# Minimum SIP required is just Rs 500

3. HDFC Small Cap Fund

Launched in April, 2008, this small cap equity-oriented mutual fund has given a return 21.53 % since its launch.

Duration

Returns (Direct Mutual Funds)

1 Year

24.1%

3 Year

22.3%

5 Years

NA

Why should you opt for this fund?

# Being a 10-year old fund, its performance can be judged better

# Since its launch, the fund has consistently outperformed its benchmark Nifty Free Float Small Cap 100

# The expense ratio of the fund is 0.49%

# You start with a minimum SIP of Rs 500

4. Mirae Asset Emerging Bluechip Fund

Launched in July 2010, this large & mid cap oriented mutual fund has given a return of 27.36%.

Duration

Returns (Direct Mutual Funds)

1 Year

13.9%

3 Year

21.0%

5 Years

36.4%

Why should you opt for this fund?

# Since its launch, the fund has consistently outperformed its benchmark Nifty Free Float Midcap 100

# Being a 7-year old fund, it’s performance can be judged easily

# The expense ratio of the fund is 1.73%

# You can start with a minimum SIP of Rs 1000

5. Aditya Birla Sun Life Small Cap Fund

Launched in May 2007, this small cap equity oriented mutual fund has given a return of 21.85 %.

Duration

Returns (Direct Mutual Funds)

1 Year

6.4%

3 Year

18.5%

5 Years

29.9%

Why should you opt for this fund?

# Being almost an 11-year old fund, its performance can be judged easily

# It has consistently outperformed its benchmark Nifty Free Float Midcap 100 since its launch

# The expense ratio of the fund is 1.27%

# You can start with a minimum SIP of Rs 1000

6. L&T Midcap Fund

It was launched in August 2004, and is a mid cap equity-oriented mutual fund. It has given a return of 24.82% since its launch.

Duration

Returns (Direct Mutual Funds)

1 Year

8.7%

3 Year

18.8%

5 Years

33.1%

Why should you go opt for this fund?

# Its performance can be easily judged as the fund is nearly 13 years old

# Since its launch, it has consistently outperformed its benchmark Nifty Free Float Midcap 100

# The expense ratio of the fund is 1.53%

# You can start with a minimum SIP of Rs 500

7. SBI Small Cap Fund

Launched in September 2009, this small cap equity oriented mutual fund has given a return of 31.05% since its launch.

Duration

Returns (Direct Mutual Funds)

1 Year

22.4%

3 Year

22.6%

5 Years

NA

Why should you opt for this fund?

# As the fund is nearly 8 years old, the performance can be easily judged

# Since its launch, the fund has consistently outperformed its benchmark S&P BSE Small cap since its launch

# The expense ratio of the fund is 1.29%

# You can start with a minimum SIP of Rs1000

8. Sundaram Small Cap Fund

Launched in February 2005, this small cap equity-oriented mutual fund has given a return of 19.02 % since its launch.

Duration

Returns (Direct Mutual Funds)

1 Year

-4.2%

3 Year

10.2%

5 Years

36.4%

Why should you opt for this fund?

# The performance of this fund can be easily judged as its nearly 7 years old

# The fund has consistently outperformed its benchmark S&P BSE Small Cap since its launch

# The expense ratio of the fund is 1.64%

# You can start at a minimum SIP of Rs 250

9. Canara Robeco Emerging Equities

Launched in March 2005, this large & mid cap equity-oriented mutual fund has given a return of 26.49 % since its launch.

Duration

Returns (Direct Mutual Funds)

1 Year

16.6%

3 Year

20.1%

5 Years

37.0%

Why should you opt for this fund?

# The fund is almost 12 years old, which makes it easy to judge the performance

# It has consistently outperformed its benchmark Nifty Free Float Midcap 100 since the launch

# The expense ratio of the fund is 0.8%

# You can start at a minimum SIP of Rs 1000

10. Aditya Birla Sun Life Pure Value Fund

Launched in March 2008, this is an equity value oriented mutual fund which has given a return of 20.61% since its launch.

Duration

Returns (Direct Mutual Funds)

1 Year

3.5%

3 Year

16.7%

5 Years

32.1%

Why should you opt for this fund?

# As the fund is nearly 9 years old. You can judge it’s performance easily

# The fund has consistently outperformed its benchmark S&P BSE 200 since its launch

# The expense ratio of the fund is 1.2%

# You can start with a minimum SIP of Rs 1000

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Comment (1)

  1. Mano Antony

    company call over

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