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Maximize Your Returns by Investing in Your 20s and 30s

Updated on April 19, 2016

Investing in your 20s and 30s - A Smart Move

Now that you have joined a company and started your first job, you can start thinking of how you are going to be spending that money, and also saving some of it. Sure, go ahead and have a celebration, but after that, you need to sit down with pen and paper, and think about how you will plan for the future. The best way to grow your savings is to invest in the best equity mutual funds.

Benefits of Starting Young

By starting young, you can take advantage of the power of compounding. To understand this concept, take a look at the following example. If you can save Rs 1,000 a year for 40 years, you make eight times the amount you would have accumulated had you saved Rs 1,000 per year for 20 years, assuming a rate of interest of 6%. That is the power of compounding. According to an article on dailyworth.com, you can use the rule of 72 to understand better the power of compounding. To know how long it will take to double your money at a 2% interest rate, divide 72 by 2; it will take 36 years to double your money. However, at a higher rate of interest, say 8%, you can double your money in nine years (divide 72 by 8.

Invest in the Top Equity Mutual Funds

According to an article on stableinvestor.com, the BSE Sensex grew at a compound annual growth rate of 15.1% for the twenty years ended 2011. No fixed deposit can give that kind of return. The easiest way to invest in equities is through equity mutual funds in India. You don’t need to invest one big lump sum; you can invest monthly through a systematic investment plan, or SIP. See the mutualfund.birlasunlife.com website for an understanding of how SIP works.

Invest in Equity Funds in India

There are various different equity funds in India to choose from. The best equity mutual funds could either be large-cap diversified funds, or mid-cap funds, or sector-specific funds. Large-cap mutual funds in India are those which invest in companies with the largest market capitalization on the Sensex. A mid-cap fund, as the name suggests, is one which invests in stocks of companies that come in the middle of the list when it comes to market capitalization rankings. An example is the Birla Sun Life Mid Cap Fund. Sectoral funds are those which invest in the equities of companies belonging to a particular sector. Examples include the Birla Sun Life Manufacturing Equity Fund, the Birla Sun Life Infrastructure Fund and the Birla Sun Life MNC Fund. Another segment of the best equity mutual funds in India is the balanced fund. The Birla Sun Life Balanced 95 Fund tries to achieve long-term growth of the investors’ money by balancing the fund’s exposure to equity and debt-related securities. Such funds give the safety of debt when the stock markets are down, and enable a swing to equities when the stock markets are booming.

Equity Mutual Funds in India Are Also Useful for Tax Savings

Equity funds in India that come under the equity-linked savings scheme category can help to save taxes, in addition to creating wealth. One such example is the Birla Sun Life Tax Relief 96 Fund, which is an equity-based fund of moderately high risk.

Compare Returns across Funds Before Investing

You should find the best equity mutual funds to invest in by comparing the historical performance, fund management charges and ease of entry/exit across the various mutual funds available. Be sure to look at the five-year history in addition to the performance across the past year; past performance is no guarantee of future performance.

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