How to Build a Strong Mutual Fund Portfolio for Long-Term Wealth | Compounding | Merupula Madhu

Welcome to SocialPost Finance! In this insightful session, host Nihal speaks with Financial Planner Merupula Madhu about essential tips for building a strong mutual fund portfolio and reaching your wealth creation targets.

Madhu provides crucial advice on how investors can maximize their returns and ensure long-term wealth:

• Focus on Saving Rate: The number one tip is to focus on changing your saving rate, rather than chasing higher returns. Saving rate is within your control, but returns are not. Increasing your SIP amount significantly increases the final corpus, potentially generating 50% more wealth.

• Real Compounding Takes Time: The true compounding effect requires a minimum investment period of 10 years. In equity, 10 years is considered short-term. Real compounding, where growth comprises 70% of the corpus after investing 30%, does not occur over short periods like three, five, or seven years. Staying invested in equity is necessary for the compounding effect to work. Missing even the best 10 trading days over five or ten years can negatively impact your overall return by 3% to 4%.

• Avoid Zero-Exhaustion Risk: It is crucial to avoid investment avenues where the capital can become completely zero. For example, investing in highly risky categories like some penny stocks, even with a small 10% allocation, can wipe out that capital. A complete loss of 10% of capital can result in an overall 2% reduction in expected returns over 10 years. Only invest in assets you understand.

• Equity vs. Property Comparison: Many people believe property is the only thing that generates returns, but this is a misconception. While property has its own merits, equity offers superior long-term growth. Historical data shows that a Rs 1 lakh investment from 1979 that grew to 1 crore in property yields an Internal Rate of Return (IRR) below 12%, while the Sensex yielded 15.56%. This small difference in return (around 3%) can lead to a massive difference in corpus, such as 5.9 crore in equity versus 1 crore in property. Experts suggest not going one-sided; consider a 50/50 approach, or build your equity portfolio first before moving to illiquid assets like property.

• Diversification and Patience: Performance rotates between sectors—like Gold, Large Cap, Mid Cap, and International investments. Investors should diversify and wait, rather than making decisions based on temporary top-performing funds or sectors. Focusing on a proper process instead of fixating on the result (returns) is the formula for success in mutual funds.

Watch the full video for detailed expert advice on building a resilient and profitable mutual fund portfolio!

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How to Build a Strong Mutual Fund Portfolio for Long-Term Wealth | Compounding | Merupula Madhu
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#Finance #Investing #MoneyTips #SocialPostFinance #Socialpost

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