In mythology and history, we’ve learned that life isn’t just about working hard to meet daily needs. Life is about growth, leaving a positive impact, and helping each other. But many of us find ourselves trapped in the middle-class cycle, struggling to make ends meet. That’s why you’re reading this blog—to break free from the financial grind and achieve financial freedom.
You already understand the importance of financial independence, especially in today’s economy where inflation is soaring. Many of us, like horses on a treadmill, are stuck in the lower-middle class, constantly running but going nowhere. In our previous blog, we talked about how crucial financial freedom is and the disciplined approach needed to achieve it. Today, we’ll explore how your money can compound, and how to build enough wealth to generate a passive monthly income—so you can live life on your terms without working.
How Much Do You Need to Earn Passively?
In the last blog, we discussed how the equity market has been generating 15-20% returns over the past 15-20 years. To put this into perspective, if you aim to generate ₹2 lakhs per month (₹24 lakhs annually), investing in the right shares can help you reach this goal without having to work. The equity market can take care of your dreams and fund the lifestyle you desire. But the big question is: how do you accumulate the amount needed to achieve this level of financial freedom?
If you haven’t read our first blog on achieving financial independence, go check it out first—it’s essential to understand the foundation before diving into strategies.
Mutual Funds: The Gateway to Wealth
Believe it or not, 15-20 years ago, when I would meet potential investors to convince them about the future of mutual funds, most people were skeptical. They couldn’t believe that mutual funds could give good returns, despite the growing economy and the fact that the government regulates them to ensure safety. However, those who did believe are now reaping huge benefits from mutual funds, which are essentially an indirect form of investing in the stock market.
The “Mutual Fund Sahi Hai” campaign has done an incredible job spreading awareness. However, there are still many misconceptions, crooks, and pitfalls in the mutual fund industry. Today, there are over 5,000 mutual funds available, ranging from equity, debt, and balanced funds, each designed for different financial goals and economic conditions. Remember, there is no “best” or “worst” mutual fund—it all depends on your current needs and the market environment.
Why SIPs are a Game-Changer
For beginners, mutual funds are an excellent entry-level investment option that offers good returns while fostering disciplined investing habits. If you haven’t started investing yet, now is the time to begin a Systematic Investment Plan (SIP). Many people think they can choose the best fund themselves, but even a 1-2% higher return can make a massive difference in your wealth over time.
A Real-Life Example: Ram vs. Shyam
Take, for example, Ram, who invests ₹10,000 per month in a mutual fund with an expected return of 15%. After 15 years, he would have invested ₹20.4 lakhs and his wealth would have grown to approximately ₹60 lakhs—a wealth gain of about ₹40-43 lakhs.
Now let’s look at Shyam, who also invests ₹10,000 per month, but in a mutual fund that yields a slightly higher return of 17%—just a 2% difference. Over the same 15 years, Shyam’s investment would grow to an impressive ₹72-75 lakhs, with a wealth gain of approximately ₹53-57 lakhs. This shows how just a 2% difference in returns can result in significantly higher wealth over time.
This is where professional advice comes in. A small advisory fee can help you choose the right funds, potentially leading to substantial growth in your investments. The difference between Ram and Shyam’s portfolios may seem small at first, but it demonstrates the power of expert guidance and how it can lead to major financial gains.
The Bottom Line
Mutual fund investments, especially through SIPs, are a great starting point for building wealth. With the right approach and a little guidance, you can harness the power of compounding returns to reach your financial goals faster. If you haven’t started your journey toward financial freedom yet, the time is now. Stay disciplined, choose wisely, and watch your wealth grow!