Can you create corpus for new venture with MFs?
The government of India is promoting self-employment with its 'Skill India' initiative and subsidized loans. With this, many people are moving towards self-employment rather than doing a job forever. However, the biggest problem while starting a new venture on your own is capital. Though the government is providing subsidized loans, still the amount subsidized by the government falls short of fulfilling the capital needs. If you try to take a business loan from the bank then you need to keep something as security to get the loan. So, is planning for the capital with the help of mutual funds a viable idea?
Let us assume that you have a monthly savings of Rs. 30,000 and the capital requirement is Rs. 1 crore and you plan to start your own venture after 10 years. So, to achieve this we assume that you would invest 25 per cent in large-cap equity funds, 35 per cent into mid-cap equity funds and 40 per cent into small-cap equity funds. The average 5-year CAGR (Compounded Annual Growth Rate) is 13.66 per cent, 19.18 per cent and 21.26 per cent, respectively. The weighted CAGR would work out to be 18.63 per cent. So, if we assume the same will continue till 7 years then by investing Rs. 30,000 in the proportion as mentioned every month, you would be able to accumulate Rs. 1.05 crore.
The above illustration doesn't account for inflation. Even the above investment weights would differ from person to person depending upon his/her risk appetite and overall monthly savings. More the monthly savings more likely you would be able to achieve your corpus and early than estimated. In the above illustration, the portfolio may suit aggressive investors and the proportions and asset classes would be different for conservative and moderate risk takers.