I want to invest Rs. 1000 per month in a mutual fund SIP?
I am 24 male, my current salary Rs. 16,500. I live in a village and I’m living with my parents. I want to invest Rs. 1,000 per month in a mutual fund. My parents and I are afraid of the stock market, so they are against me investing more than Rs. 1000. I got to prove to them I can make more returns than a recurring deposit or fixed deposit. I need your advice on how I should plan my investment with the purpose of building wealth in the long term. Since my investment is low, I want to know which is better. Do I invest in a single fund or do I diversify it? If I can diversify, I thought of investing in one large cap, one mid cap, one small cap, one flexi cap and in one gold fund. Is this okay or can I improvise it?
I must say, in your circumstances, it takes a wise man to think about investing Rs. 1,000/month with a long-term view instead of just sticking to a recurring deposit or fixed deposit, which can yield only about 7 % p.a.
I think that you are already thinking long-term. With a 10-year horizon, you can realistically aim for 10-11 % annualised return easily.
You can get this kind of return from equity mutual funds. Because it is equity, of course, the returns are not guaranteed, but I say it from my experience that there are chances that you will make more.
A straightforward way will be to pick one good large-cap equity fund as your core. Start a monthly SIP of Rs. 1,000, stay invested for 10+ years.
You must make sure that you will not stop mid-way. In the next 10 years, there will be multiple events where the markets will not perform as per your expectations. It is more important to continue your SIP in such times. Do not stop.
One good example is a Large Cap Fund (Direct Plan). These funds invest predominantly in large-cap companies. Their aim is purely long-term capital appreciation.
Large-cap funds historically show at least ~13 % p.a. over 10 years in many cases. If you stick with this type of one fund (rather than many small funds), first, you’ll keep things simpler for you and your parents. Second, in the long term, you can almost be certain to earn a 10-11% CAGR return.
You could also diversify across small, mid, flexi, and gold funds as you suggested, but with Rs. 1,000/month, it’s better to start simple. Pick one strong fund and keep investing with a lot of discipline.
Once your monthly investment amount grows (Rs. 5000, say), then you can consider adding another category. For now, your core fund is fine.
Disclaimer: This content is for informational purposes only and should not be considered investment advice.
