As wealth management and financial literacy becomes increasingly popular among Indian investors, a lot of attention is being paid to mutual fund investments.

In March alone, nearly Rs 26,000 crore were contributed into mutual funds through systematic investment plans by retail investors, data from Association of Mutual Funds shows.

The rising interest in mutual fund investment follows as the historical trends have shown that these funds have been able to generate more than double annualised returns compared to traditional options like fixed deposits. 

Lately, this investment option has been attracting more investors who are seeking to build long-term wealth. They either choose to contribute to mutual funds through SIPs or one-time lump sum amounts.

Typically, a one-time method of investment is chosen by the investors when they have additional disposable income. Moreover, periods or market volatility can make valuations appear attractive. In such cases, investors try to “buy the dips”, aiming to enter the market at lower price points for potentially higher long-term returns.

However, mutual funds are vulnerable to market volatility and have their own limitations. When investing in mutual funds, it is recommended to adopt a long-term investment horizon. This helps to protect the wealth from short-term market risks which may arrive due to economic slowdown or geopolitical tensions.

Hence, significant amounts such as Rs 10 lakh should be invested in the market with a long-term perspective, careful planning, and proper asset allocation. Historical trends have shown that such an amount, if left untouched for a duration of 20 years, has the ability to generate significant returns in mutual funds.

Here Is What The Calculations Show:

Assuming that a certain fund gives 12% per annum return

If initial lump sum investment value is Rs 10 lakh

Investment period: 20 years

Then, the total interest earned over 20 years: Rs 86,46,293

Final corpus value at the end of 20 years: Rs 96,46,293

This amount is not adjusted for inflation. Moreover, the assumed annual returns in this case is a realistic value. Past trends have shown that some mutual funds have the potential to generate higher annualised returns, but they come with their own risks.

To safeguard their wealth against volatility, many investors are also increasingly diversifying their portfolios. They are combining mutual funds, stocks and non-market-linked assets like gold and fixed deposits, adopting a safer, balanced wealth approach.

Hence, it is always recommended to consult with a financial expert before making significant investment decisions.

. Read more on Personal Finance by NDTV Profit.This investment option has been attracting more investors who are seeking to build long-term wealth.  Read MorePersonal Finance 

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