Our last article on 10% vs 15% was liked by a lot of our readers. Following up on that article, we have a comparison between 14% and 15%.
The difference is just 1%. It doesn’t seem like a lot, does it?
But what kind of difference this 1% can make in the long run? Well, the results will shock you!
Before that, it is important to know why we are comparing 14% returns to 15% returns.
A lot of people who invest in mutual funds, do not know whether they are investing in a ‘regular’ mutual fund or a ‘direct’ mutual fund.
Fees charged by mutual funds annually:
- 0.5% to 1% for Direct Mutual Funds.
- 1.5% to 2% in Regular Mutual Funds.
The difference between these two funds is approximately 1% – which, in case of regular mutual funds, goes to your broker or financial advisor.
Let’s get straight to the results.
This will be your investment:
- ₹ 5000 per month in a direct mutual fund.
- ₹ 5000 per month in a regular mutual fund.
Both are same funds from the same company – the only difference is, one is direct and the other is regular which charges 1% extra.
The direct mutual fund gives 15% returns over a long period of time and the regular fund gives 14%.
Check out the table below:
|₹ 5k / month|
|₹ 5k / month|
|Year 15||28,30,028||30,86,779||2.6 lakhs|
|Year 20||58,75,659||66,46,027||7.7 lakhs|
|Year 25||1,17,39,762||1,38,04,947||21 lakhs|
|Year 30||2,30,30,591||2,82,04,091||52 lakhs|
|Year 40||8,66,27,720||11,54,18,484||2.9 crore|
|Year 50||32,23,96,353||46,82,49,343||14.6 crore|
In the first year, the difference was small. Just 325 rupees. But as the time period gets bigger, the power of compounding begins to show its true power.
It is at 15-20 years that even 1% extra gains begin to look significantly and 30 years onwards – it simply gets bigger and bigger.
In 40 years, the difference is nearly 3 crore and at the end of 50 years it has become humongous at nearly 15 crore.
50 years is a lot of time, but this article is only to show you the difference that 1% can make – as the number of years increase. Also, remember, the investment was just 5000 per month.
Most investors, as they grow older, earn more and save more.
Let us know your thoughts in the comments section below.