Replace your piggy bank with equity mutual funds for wealth creation

New Delhi: A traditional way to save money is through a piggy bank. Children are often given a piggy bank to instill the habit of saving. However, in today’s changing times, the concept of an ‘Equity Piggy Bank’ is being introduced, addressing the limitations of traditional piggy banks that only store money without offering any returns. And an ‘Equity Piggy Bank’ provides the opportunity for returns on your savings, potentially making you wealthy.

Let’s understand what the concept of an Equity Piggy Bank entails-

How it works, and how it can make you rich

When you put money into a piggy bank or savings account, the amount deposited remains the same. You don’t earn any returns on the money kept in a piggy bank. There are two drawbacks to keeping money in a piggy bank: firstly, there are no returns or interest earned, and secondly, the value of your money decreases due to inflation.

To avoid these risks, an Equity Piggy Bank can help. Here, equity refers to equity mutual funds, which are a way of investing in mutual funds similar to how you save in a regular piggy bank. Just as you can deposit money into a piggy bank either gradually or all at once, you can invest in mutual funds through lump-sum investments or through Systematic Investment Plans (SIPs), where you invest a fixed amount regularly.

Let’s explore why you should consider investing in mutual funds instead of a piggy bank

Suppose you deposit Rs. 100 every day into a piggy bank, which amounts to Rs. 3,000 per month or Rs. 36,000 annually. If you continue this for 10 years, you will have deposited Rs. 3,60,000 into your piggy bank. If you continue for 20 years, you will have Rs. 7,20,000. However, there will be no interest or returns on this amount due to inflation.

A recommended strategy for such a long time horizon is investing in equity mutual funds. In equity mutual funds, you can expect returns of up to 12% over the long term. If you invest Rs. 3,000 monthly through SIPs for 10 years, your investment will total Rs. 3,60,000, and you can potentially earn an estimated return of Rs. 3,37,017, resulting in around Rs. 7,00,000 in your hand.

Similarly, if you invest Rs. 7,20,000 in an equity mutual fund for 20 years, you can expect to accumulate around Rs. 30,00,000.

One way to boost your investments in an Equity Piggy Bank is through a Top-Up or Step-Up SIP, where you increase your SIP amount annually by a fixed percentage, such as 20%. This disciplined approach can potentially help you become a crorepati (millionaire) over time. With an estimated return of 12%, your investment of Rs. 67,20,768 could grow to approximately Rs. 1,44,12,822.

In summary, while a piggy bank keeps your money safe but stagnant, investing in equity mutual funds offers the potential for substantial returns over the long term. It’s essential to choose investment options based on your risk tolerance and investment horizon.