Realistic Fund Income: Moving from Illusion to Reality

Introduction:

In today's world, we often come across enticing investment offers promising massive returns. "Invest Rs. 10,000 and get 5 crores instantly!" Such claims grab our attention, but do they reflect reality? How long do we actually need to save? What profits should we expect? Unfortunately, these crucial details are often overlooked or hidden in fine print, requiring a magnifying glass to uncover. In this blog post, we will delve into the reality of economic investments and explore the approach to attain realistic fund income.

Understanding Rate of Return on Equity Funds:

To begin, let's examine the rates of return on equity funds over different time periods. The table below presents the annual return percentages for various schemes categorized by their respective time frames:

Analyzing the data, we find that the selected funds belong to the large cap and flexi cap categories. These funds carry lower risk and exhibit relatively stable returns, unlike small cap and midcap funds that tend to be more unpredictable and volatile. Hence, we focus on the former for our analysis.

Considering the 20-year investment scenario, the funds in our table yield an average return of approximately 20%. However, investing in Rs. 10,000 per month for 20 years at this rate would result in a final amount of around Rs. 3 crores, falling short of the promised Rs. 5 crores. Therefore, it is crucial to approach these returns with a dose of realism.

Realistic Expectations and SIP in Equity Funds:

When it comes to systematic investment plans (SIPs) in equity funds from 2004 to 2023, the average rate of return stands at 12.55%. This information is clearly depicted in the accompanying chart.

Expected Value of Investment Over a Period:

To illustrate the potential growth, let's consider an investment of Rs. 10,000 per month at an expected rate of return of 14% on equity funds. The table below outlines the projected maturity values after different time periods:

It is important to note that investment returns are subject to market changes. During market peaks, the returns can be considerably higher, while bear markets may yield lower returns.

Conclusion:

In conclusion, it is crucial to approach investment opportunities with realistic expectations. While the alluring promise of earning 5 crores may seem tempting, the likelihood of achieving such returns is limited. By understanding the market dynamics, managing our expectations, and making informed investment decisions, we can aim for a more realistic income of around 1.5 crores based on expected returns of 12-14%. It is essential to avoid getting carried away by marketing gimmicks and to comprehend the reality of investments before committing our hard-earned money.

By adopting a practical approach and setting achievable goals, we can navigate the world of investments with greater clarity and confidence.

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