India got independence 75 years ago, but true independence was achieved only recently when we as a country started becoming self-reliant. Similarly, individuals may consider themselves financially independent when they start earning. Still, true financial freedom is achieved only when one can live comfortably without being dependent on his job or profession. This can happen when enough corpus of wealth is created and invested in a manner that can provide regular income that is enough to take care of living expenses. Once this state is achieved, the particular individual will no longer be a prisoner to the day job and can start living for themselves. This state allows you to spend time in activities that provide true satisfaction.

To create enough wealth corpus, disciplined saving and prudent investing are necessary. Saving is a first step in the direction of financial freedom. Unless we save, we cannot invest. Once we have started setting aside a pre-determined sum as saving consistently, the next challenge is to invest prudently to earn a good return in a tax-efficient manner. This can be achieved by understanding the suitable asset allocation required for wealth creation. As a thumb rule, you can put 100 minus your age in equity mutual funds and the remaining in debt securities (debt mutual fund/bonds / NCDs). For example, if your age is 30 years, then you can put 70% of your savings into equity mutual funds.

Systematic Investment Plans (SIPs) in equity mutual funds are one effective way to accumulate wealth. SIPs ensure that a pre-determined sum of money is automatically deducted from your bank account every month, which results in forced saving. And since investment happens every month, you also benefit from the concept of rupee cost averaging, which means that you benefit by investing at different index levels. Further, investing in mutual funds helps derive the benefit of compounding, as your money, including all returns, remains invested at all times. For example, a SIP of Rs. 10,000 per month over a period of 20 years can lead to a wealth of Rs. 1 crore, assuming a 12% per annum return.

So, to achieve financial freedom, start taking concrete steps as early as possible. The early in your life you begin, the more the benefit, and you can achieve financial freedom faster.

Anurag Garg
founder and CEO, Nivesh