Weekend Bytes
Decoding Mutual Fund Investing for Freelancers
“Freelancers” in India wear many hats – they are content creators, designers, developers, consultants, and more, each contributing their unique skills. But amidst this creative chaos, savings might not get prioritized.
Normally, investors use Systematic Investment Plan (SIP) to navigate through the market volatility, and harness the power of compounding. But the income of freelancers tends to be erratic as it is dependent on the frequency of projects at any particular point of time. Thus, it is difficult for such investors to invest as regularly as a non-gig worker (one who is not a freelancer).
So, how can Freelancers invest wisely?
Building long-term wealth demands navigating short-term market volatility. Amidst this volatility, maintaining investment discipline, especially for a freelancer, can be challenging. Despite that, investing a certain portion of one's freelancing income through SIP on monthly basis would help in building a sizeable corpus in the long term.
> What is the impact of disciplined investing?
From Table 1 below, the following can be understood: If a freelancer invests 15% of his / her assumed average monthly income (₹18,000) through SIP in a scheme that invests 50% of the amount in Equity and 50% of the amount in Debt, his / her value of the investment at the end of 25 years will be over ₹36 lakh.
A freelancer’s investible amount through SIP tends to be relatively smaller than a non-gig worker. Hence it is advisable that when they receive a large amount of income during the year, they should invest the same yearly in order to add to their wealth in the long term.
Table 1 shows that if the freelancer additionally invested a lumpsum amount of ₹72,000@ at the end of every year in the same scheme, his / her total value of investment would go from just ₹36.56 lakh to ₹1.15 crore!
@Assumed 4-month extra accumulated income invested per year
But is this corpus enough?
Hint: Check the bonus note below.
*Source: GigPulse Report (August 2023) named “Financial Matters and Motives: Insights into the Various Lines of Gig Workers”, #Returns calculated by taking mean of 10-year rolling returns between 01/06/13 and 30/05/23 for various benchmarks. i.e. 50% Nifty and 50% 10 year G-Sec as per AMFI guidelines
> What about risk appetite?
Since a freelancer’s income is not consistent, the risk appetite of such an investor is likely be lower than a non-gig worker. Keeping this in mind and the fact that Indian freelancers are relatively younger, it would be appropriate for them to have a balanced exposure to both equity and debt / gold in order to create wealth in the long term.
Bonus Note for a Freelancer:
Since inflation negatively impacts one’s investments, a freelancer should regularly top up his / her SIPs to not only increase the size of corpus, but also keep pace with inflation.
