Wealth creation is the desire of millions and there are investors who have created richness for themselves through investment. There are different types of investment avenues available in the market. Many of these investments offer fixed income but in the long run, they result in capital depletion because of the presence of inflation that leads to increase in cost of living and ultimately to depletion of capital. Therefore, if you want to create wealth, fixed income generating investment options can be ruled out of the basket. If you go by the historical data, then it reflects that in long run stocks have always yielded returns that are above the rate of inflation, thus adding to your real capital. In this article, we will see how a regular and disciplined investment of small amount of money in equity can make you wealthy over a long period of time. Equity here stands for equity shares and mutual funds investing most of their corpus in stocks.
How to create wealth?
Let us virtually create wealth in this article. Suppose you are able to save and invest Rs. 5000 on monthly basis for next 30 years. This means, you will save Rs. 60,000 per year and Rs. 18 lakhs in next 30 years. Assuming rate of return at 12% per annum, at the end of 1st year, you will earn a total return of Rs. 7,200 and the total amount you will have now is Rs. 67, 200. Next year, you can reinvest this amount and add Rs. 60,000 as a regular investment. The table below will tell you the values that you will get year on year:
|Year||Total investment made in the year||Total return @ 12%||Total capital at the end of year|
At the end of 13th year, you will be able to recover the total amount of investments that you will invest for total of 30 years. Please note that time value of money concept has not been considered while making these calculations.
At the end of 30th year, with these consistent investments and re-investments, you will have more than 1.5 crore rupees with you. Now, can you believe that a total contribution of 18 lakhs from your pocket can grow in crores of rupees.
Different Equity Schemes
There are different types of schemes that are available within equity funds: diversified, large cap, mid cap, small cap, equity linked savings scheme, sectoral funds, etc. Out of these funds, large caps are considered to be less volatile and therefore less risky. However, the fact is in short run, stocks are more risky whereas in long run, the riskiness of shares is taken at an extremely low level.
Remember, a small drop can also make a contribution in the formation of an ocean. Start making consistent savings and investments today and create wealth for your future.