Case Study: Investing in Mutual Funds – A Real-World Example with Numbers

 Introduction:

Investing in mutual funds can be a powerful way to grow wealth, but understanding how it works through real-life examples makes it even clearer. In this case study, we'll look at an individual investor's journey, highlighting key decisions, returns, and outcomes.

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Case Study: Mr. Sharma’s Mutual Fund Investment Journey

Background:

• Investor Profile: Mr. Sharma, is a 35-year-old salaried professional in India.
• Goal: Save ₹50 lakhs in 15 years for his child’s higher education.
• Risk Appetite: Moderate, preferring a mix of equity and debt funds.

Investment Strategy:

1. Fund Selection:

   • Equity Fund: 60% allocation to "ABC Equity Fund" (high-growth, diversified)
   • Debt Fund: 40% allocation to "XYZ Debt Fund" (low-risk, steady returns)

2. Monthly SIP (Systematic Investment Plan):

   • Amount: ₹10,000 per month in the chosen funds (₹6,000 in Equity, ₹4,000 in Debt).

Performance Overview:

• ABC Equity Fund:

  • Initial NAV (Net Asset Value): ₹100
  • Average Annual Return: 12%
  • 15-Year NAV Projection: ₹520

• XYZ Debt Fund:

  • Initial NAV: ₹10
  • Average Annual Return: 7%
  • 15-Year NAV Projection: ₹28

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Calculation of Returns:

• Equity Fund Growth:

  • Invested Amount: ₹6,000 x 12 months x 15 years = ₹10,80,000
  • Future Value: Using the SIP calculator at 12% returns, it grows to ₹23,50,000.

• Debt Fund Growth:

  • Invested Amount: ₹4,000 x 12 months x 15 years = ₹7,20,000
  • Future Value: Using the SIP calculator at 7% returns, it grows to ₹13,40,000.

• Total Value After 15 Years:

  • ₹23,50,000 (Equity) + ₹13,40,000 (Debt) = ₹36,90,000

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Conclusion:

Despite not reaching his target of ₹50 lakhs, Mr. Sharma’s investment of ₹18 lakhs (₹10,80,000 in equity and ₹7,20,000 in debt) grew to ₹36,90,000 over 15 years, highlighting the importance of compounding, diversification, and a balanced approach in mutual fund investments.

Lessons Learned:

1. Start Early: Beginning sooner could have allowed Mr. Sharma to achieve his goal through longer compounding periods.
2. Rebalance Regularly: Adjusting the equity-to-debt ratio based on market conditions might optimize returns.
3. Review Performance: Regular monitoring and switching to better-performing funds if necessary could yield better outcomes.