Wealth Creation through Equity Mutual Fund Investment

Dear Friends,

                   Last week I received a call from one of our initial clients saying that she wanted to start investing in Mutual Funds again. She had invested in HDFC Equity Fund through us in March 2007 when she was in Chennai but moved to a different city after that. In 7.5 year’s time, the investment has grown by a whopping 3.5 times. The investment amount was small and hence the value today might not be huge but nevertheless the returns have been excellent. I am sure that she would have repented for not pursuing her investments in Equity MFs and building sizeable wealth by now.

In July 2014, I left my corporate job with a Tier 1 IT organization, earning a comfortable package, after spending 15 years with them. Many of my friends, relatives and well-wishers were inquisitive as why I was leaving a well-paid job and getting into a new venture, taking a lot of risk. Though passion for Wealth Management/ Financial Advisory was the key driver behind the change, I could not have taken the bold step but for my disciplined investments in Equity through Mutual Funds since 2004.

The above 2 anecdotes should give you a sense of the power of equity investments and how it can be a successful wealth creation tool in the long run. However, even today there is a sizeable population among us that thinks that equity investments are risky and akin to gambling. Please remember that there is risk in every investment that we make, whether it is Gold (20% down over last 2 years) or Bank Deposits (risk of not being able to beat inflation) or Real Estate (usurping, black money) and it is just that we need to understand the risk and be able to manage the same.

Investments in Equity Mutual Funds are to be made with a minimum of 5 year time horizon and if you have the appetite for it, the return potential cannot be matched by any other asset classes like Real Estate or Gold or Bank Deposits etc. For long term wealth creation, Equity MFs should be an integral part of an investor’s portfolio. Those who have experienced it can vouch for its potential and those who have ignored it will feel sorry for missing the opportunity. Principal Investment and Returns from Equity MFs are 100% tax free for periods more than a year which is another good reason for investing in it and something that is unmatched by most other investments.

Indian economy is on the revival path with a stable government, decreasing current account and fiscal deficit, policy reforms, decreasing inflation, improving GDP outlook and earnings forecast, and all these augur well for good equity market performance in the long run.

Indian MF Industry return has been far superior to that of the market returns (Sensex and Nifty). The following table gives the 10 and 15 years returns of Market (NIFTY) Vs. CRISIL – AMFI Index (tracks the performance of Diversified Equity, Large Cap, Mid Cap and Small Cap Mutual Fund Schemes).

Investment Type CNX Nifty CRISIL-AMFI Equity Fund Performance Index
Lumpsum Returns Value of Rs. 1 Lakh Investment
10 Years ₹ 4.73 ₹ 6.00
15 Years ₹ 5.89 ₹ 13.40
SIP Returns Value of Rs. 10,000/- Invested every month
10 Years (Rs. 12 Lakhs) ₹ 23.43 ₹ 27.53
15 Years (Rs. 18 Lakhs) ₹ 62.03 ₹ 95.92

Over the last 15 years, if you had invested 10,000/- per month through SIP in any average Equity Mutual Fund, you would be a Crorepati now!

Rs. 10,000/- SIP per month for 15 years since Nov 1999 amounting to an overall amount of 18 Lakhs would have grown to:

  1. 1.55 Crores in HDFC Equity Fund
  2. 1.28 Crores in Franklin Prima Plus Fund
  3. 1.81 Crores in Reliance Growth Fund
  4. 1.54 Crores in SBI Magnum Global Fund
  5. 1.46 Crores in HDFC Top 200 Fund


Please bear in mind that after you select a good Equity MF and start investing in it, you need to review the performance of it atleast once a year to make sure that the fund is able to beat its category average and its benchmark or take corrective action as required.

If you are still not convinced on the power of Equity MFs or have any specific questions, please feel free to reach out to me and I will be happy to answer the same.

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