Can mutual funds bring in financial freedom?
Do you have this question in your mind?
Below are some of the 3 different ways to achieve financial freedom.
Rule of 50 * 30 * 20:
Senator Elizabeth Warren popularized this rule of 50 * 30 * 20.
Spend only 50% of your income on your monthly expenses and on needs.
Remaining 30% for your ‘wants’. Again, this is also an expense. Wants may be the things you buy on EMI.
The last 20% is for savings and investing.
If at any point in life you miss this ratio, that is when you lose your focus on achieving financial goals and expenses will start over taking.
Ideally this should be possible to do, unless you start planning a lot with EMI’s in life. This eventually says that when your ‘wants’ overtakes your needs; it may ruin your life also.
One of my friends wanted to make more money to meet his expenses. He built a home which was beyond his capacity. As he started feeling the burden of loan for next 10 years, he started exploring investment opportunities and fell for one MLM activity. He was receiving money as promised in the first 6 months. So, he added more money by borrowing from his credit card (Greed overtakes now).
From the 7th month, the returns got delayed and after the 8th month money flow actually stopped.
According to him, the problem was because of the MLM which cheated him. The actual problem was when he went outside of his comfort zone for his home. This made him to break the 50*30*20
I am not saying to not buy a home, but can you plan and buy that? Plan to buy in the next 3 or 5 or 7 or 10 years.
This rule will help you to have a budget for saving & investing on monthly basis.
Rule of 15
This Rule of 15 is for long term investors. This will help you to accumulate money for all long-term goals like Retirement goal, Kids education, Kids Marriage etc.
Do you want to be a crorepati in 15 years?
Invest for 15 years,
Invest 15000 every month,
Expecting 15% returns - you may accumulate corpus of 1 crore.
It worked in the past with some of the funds.
One of the best value funds is “ICICI Value discovery fund”
Investing 15000 for 15 years and this fund has given 16.14% returns and the corpus created is 1 crore
Invested amount is 27 Lakhs
Investment tenor considered is between 03/4/2006 to 03/03/2021
Can you expect this kind of return in Real Estate?
Can you expect this kind of return in Recurring Deposit?
Mutual funds are one of the avenues which can easily help you to achieve more over a period of time.
Let us look at one more fund “SBI Healthcare opportunities fund”. This fund was started in 1999.
Almost 22 years ago and still consider the same period of 03/4/2006 to 03/03/2021.
This fund has generated 16% returns and the corpus created is 1 Crore.
Rule of 72
If you know how long it takes to double your money, then will it not be easy enough to invest in best investment product,
Yes, you can do it with “Rule of 72”
No of Years = 72 / (% of Returns)
Now let us consider the returns of each of the financial products.
Fixed deposits at 6%, Now by Rule of 72 = 72 / 6 = 12 Years
It will take 12 years for your money to double
Post office deposits at 7%
Now by Rule of 72 = 72 / 7 = 10 Years
Mutual fund benchmark returns at 12%
Now by Rule of 72 = 72 / 12 = 6 Years
Going by Benchmark returns, your money may get doubled in 6 years itself.
During the bull rally, the returns % may increase to 25 or 30 or even beyond 50%
Let us consider 5 years returns as 15%, so your money would have doubled in 4.5 years itself.
Another way is dividing 72 by number of years which will give you Actual returns %.
Insurance policies like Endowment policies, Money back policies, Whole life Insurance policies etc. will say that the amount will be doubled in 20 years.
If you divide 72/20, you will be getting 3.4% and the effective yield will be around 4%.
Most of the Insurance agents will be saying that you will be getting double the premium paid by the end of 20 years.
Now you can decide whether you are getting better returns or not. This will help you to choose the best investment product for your life.
About the Author
Ganesan Thiru is an Author, Stock Market Profit coach, Research Analyst who has trained more than 10,000+ people in stock market investments & had done 90+ webinars in the last 15+ months He has 1800+ people in his Private Facebook group “Unlimited Wealth” & active in social media. His mission is to inspire one million people in getting financial freedom.