In today's world, investing your money is essential to secure your financial future. However, not everyone has a lump sum amount to invest, and for some, the prospect of making a large investment is too daunting. Monthly investment plans provide an excellent opportunity for everyone to invest a small amount every month, which can accumulate to a substantial amount over time. In this article, we will discuss the benefits of monthly investment plans and how they can help you build wealth for financial success.
What is a monthly investment plan?
A monthly investment plan is an investment option that allows you to invest a fixed amount of money every month in an investment instrument of your choice. The amount can be as little as Rs. 500 and can go up to several lakhs, depending on your financial capacity. The investment can be made in mutual funds, stocks, bonds, or any other investment vehicle of your choice.
Benefits of Monthly Investment Plans
- Affordable Investment
Monthly investment plans are great for those who want to invest in the stock markets and mutual funds without a large initial investment. With as little as Rs. 500 per month, you can begin your investment journey.
- Disciplined Investment
One of the biggest advantages of monthly investment plans is they ensure a disciplined investment approach. Since you are contributing a fixed amount every month, you develop better financial discipline and avoid impulsive investment decisions.
- Rupee Cost Averaging
Rupee-cost averaging is a benefit of monthly investment plans. It is the practice of investing a fixed amount in the market every month. The amount invested buys more units when the markets are low and fewer units when the markets are high. Over time, this averages out the purchase price of your investment, ensuring that you are not overpaying in a bull market or panic-selling in a bear market.
- Power of Compounding
The magic of compounding works great with monthly investment plans. It is the reinvestment of earnings, allowing you to earn returns on your returns. Over time, compounding can generate significant wealth.
- Diversification
Monthly investment plans provide you with a range of instruments to invest in, from stocks to bonds, offering you diversification. Diversification helps to spread risk and reduce the impact of market volatility.
How to Start a Monthly Investment Plan?
To start a monthly investment plan, you should first assess your financial goals and risk appetite. Once you have clarity on your investment objectives and risk appetite, it is time to research the best investment instruments that align with your investment goals.
You can start with a simple visit to the bank or an Asset Management Company (AMC), with the assurance that your investment will fetch you decent returns on maturity. All the other details regarding the instruments and their underlying assets will be provided to you by the AMCs.
You can access your fund account by creating one online via the AMC's website, and start making small monthly contributions in a consistent manner. Remember, the disciplined nature of these investments will help you achieve your investment goals much faster.
Example of Monthly Investment Plan’s Impact on Financial Growth
Assuming a monthly investment of Rs. 10,000 over a period of 10 years, we can see the impact of monthly investment plans on financial growth.
Using a mutual fund scheme that has given a consistent annualized return of 12%, we can calculate the following:
- The total investment over 10 years is Rs. 12 lakhs
- The value of the investment after 10 years is Rs. 27,87,000
- The total gain in 10 years is Rs. 15,87,000
The above example shows that even with a simple monthly investment plan, one can achieve a considerable amount of wealth growth over time. Imagine what can be achieved with a higher monthly investment plan amount.
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Conclusion
Monthly investment plans are an excellent option for anyone who wants to invest in the financial markets but doesn't have a large sum of money. These plans offer the benefits of affordability, disciplined investment, rupee cost averaging, and the magic of compounding over time. With regular and consistent investments, small amounts can turn into significant wealth growth over time. However, remember to weigh the pros and cons and read the fine print carefully before diving into the Indian financial markets.
Summary
Monthly investment plans are a great way to invest your money for financial success. They offer the benefits of affordability, disciplined investment, rupee cost averaging, and the magic of compounding, all rolled into one. With as little as Rs. 500 per month, you can start your journey towards creating wealth over the long term. Nonetheless, it is advisable to read the fine print carefully and assess the pros and cons before plunging into the Indian financial markets.
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