This Friendship Day, befriend mutual funds to meet your dreams

Mutual Funds combine the best results if you are early to start, patient to continue and aggressive to compound.

Aug 02, 2019 10:08 IST India Infoline News Service

Mutual Funds
If you belong to the millennial generation or if you have kids who belong to the millennial generation, you will surely be familiar with Friendship Day celebrations. Yes, we are talking about those flashy psychedelic friendship bands which kids love to flaunt as a barometer of their social acceptability. International Friendship Day is celebrated on July 30th by the United Nations, but the actual celebration happens between July 31st and the first week of August. A normal practice is to celebrate on the first Sunday of August. The purpose behind the celebration is to spread kindness and the kindred spirit among young people. It is about taking that one step forward to befriend and spread joy.
 
Money talk on Friendship Day: How to befriend your goals?
 
Should we really talk about money on Friendship day? The answer is a rhetorical, “Why Not”. After all, Friendship Day is all about reaching out and spreading joy. As an earning member, what better joy could there be than being able to provide for the long term goals of your family. But, why do we need to befriend goals? It is said that to race ahead in life, you must run fast but that is not enough. If you are not sure of your goals, it does not really matter how fast you run. To be clear about your goals, you need to befriend your goals. That means, you need to understand your goals, experience the importance of your goals and make a continuous effort to strive towards your goals. That is the friendship we are talking about. After all, when the romance of youth wanes and fantastic dreams of youth get mugged by reality, it is time to dream about and befriend your actual goals in life.
 
Befriending your financial goals by befriending mutual funds
 
The beauty of financial goals is that it can never be abstruse. To that extent, financial well-being is discrete like happiness; you are either happy or you are not. You can work towards your financial well being just as you can work towards being happy. You have to decide to be happy and similarly you have to decide that you are going to retire wealthy. Once that decision is made, all you need is the support of mutual funds to meet your long term goals. So go ahead, and befriend mutual funds as your sure-shot recipe to reach your financial goals.
 
Befriend mutual funds because they compound small efforts into big results
 
If that sounds like high-falutin philosophy, it is not. What it means is that mutual funds combine the best results if you are early to start, patient to continue and aggressive to compound. Let us assume that you save in an equity multi cap fund at an annual yield of 15% for more than 5 years.
Monthly SIP Investment… It is saved every month in… Held on for a period of… At maturity it grows into… How many times wealth is that?
Rs10,000 Multi Cap Fund 05 Years Rs8.97lakhs 1.495 times
Rs10,000 Multi Cap Fund 10 Years Rs27.87lakhs 2.323 times
Rs10,000 Multi Cap Fund 15 Years Rs67.69lakhs 3.760 times
Rs10,000 Multi Cap Fund 20 Years Rs1.516cr 6.317 times
Rs10,000 Multi Cap Fund 25 Years R.3.284 cr 10.947 times
 
The table captures the story of a long term friendship with mutual funds. If you hold on to these funds for the long haul, you not only end up with a phenomenal amount of wealth but also multiply your contribution better. That is making money work hard? Find a good equity fund, follow a disciplined approach, don’t stop in between and watch your money grow. After all, even friendship is about sustaining for the long term, right?
 
Get closer to your goals by tagging mutual funds to goals
 
Even after you have befriended your goals, there is another step left. You need to tag these mutual funds to specific goals. You could have 5 SIPs for 5 goals or 10 SIPs for 5 goals, it does not matter. What matters is that each mutual fund SIP that you own must be tagged to specific goals (e.g. Fund A for daughter’s college, Fund B partially for retirement, Fund C for nest egg, etc.). Once this tagging is done, you are in no confusion about the purpose of each of these funds and that brings these funds closer to your goals. It also makes monitoring and rebalancing easy. This International Friendship Day, you must ideally pledge to strike a close friendship with your goals. Mutual funds can be your thick friends along the way!

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