How to Build an Investment Fund Using Self-Finance

​In 2025, Ramesh, a 35-year-old schoolteacher from Kochi, decided to take control of his financial future. With a modest monthly salary of ₹45,000, he began setting aside ₹5,000 each month into a mutual fund through a Systematic Investment Plan (SIP). 

He aimed to build an investment fund to support his daughter's higher education in the next 10 years. By consistently investing, he aimed to accumulate over ₹10,00,000, assuming an average annual return of 12%.​

Ramesh's approach mirrors a growing trend among Indian investors. As of March 2025, the mutual fund industry's Assets Under Management (AUM) reached ₹65.74 lakh crore, marking a 23.11% increase from ₹53.40 lakh crore in March 2024. 

This surge indicates a shift towards self-financing investment strategies. Moreover, the Securities and Exchange Board of India (SEBI) is promoting monthly investments as low as ₹250 to make equity investing more accessible across the country.

Understand What an Investment Fund Is

When people talk about saving and growing money, the term “investment fund” comes up quite a bit. But what is it? If you feel confused, don’t worry – many others feel the same. An investment fund is a pool of money collected from many people. 

Read More – Top Self-Finance Myths Debunked: What You Need to Know in 2025

A manager handles this money and invests it in shares, bonds, or other assets. The goal is to grow that money over time and give returns to investors. It’s like many people putting their money in a big pot, and an expert uses 

it to try and make more money for everyone.

• You can start investing in a fund with small amounts, like ₹5,000.
  
  
• The fund manager makes decisions based on market research and data.
  
  
• If the market performs well, you may get more returns. If it goes down, you may also lose money.
  
  
• There are different kinds of funds: equity funds (for shares), debt funds (for loans and bonds), balanced funds (mix of both), and more.
  
  
• You don’t need to be a market expert. The fund manager takes care of buying and selling.
  
  
• Your investment's value fluctuates daily, depending on its Net Asset Value (NAV).
  
  
• In most cases, you can withdraw your money whenever you need it, but check the rules of your fund first.

Define Your Financial Goals and Fund Purpose

Before putting your hard-earned money into any fund, you must know why you’re investing. Are you saving for your child’s education? Planning to buy a home? Or thinking about retirement? Setting clear goals will help you choose the right type of fund and decide how long you should stay invested. It gives direction to your money.

Short-Term vs Long-Term Goals

Short-term goals can be things like buying a bike or going on a holiday within 1–2 years. Long-term goals are like saving for your child’s college or your retirement after 15–20 years. You can pick different funds for each goal.

Example:

How Much Money Do You Need?

Be clear about the amount you need. Let’s say you want ₹10,00,000 for your daughter’s college fees in 10 years. You can use an online calculator to find out how much you need to invest every month to reach that amount.

If you invest ₹5,000 every month in a fund that gives 12% returns annually, you can collect over ₹11,50,000 in 10 years.

Link Each Goal With One Investment

Keep it simple. One goal = one fund. If your retirement goal is linked with a pension fund, don’t mix it with your emergency savings. This helps in tracking and managing better.

Be Realistic

Don’t expect your money to double overnight. If someone says they can do that, be careful. Good returns usually come over time, not immediately.

Adjust Goals With Life Changes

Let’s say you planned for a car in 3 years, but now you want a home instead. It’s okay to change plans. Just shift your investment and timeline accordingly.

Assess Your Current Financial Health

Before investing, look at where you stand now. Just like a doctor checks your health before treatment, you should check your financial health before deciding your investment steps. This helps avoid surprises later.

Know Your Income and Expenses

Make a simple monthly budget. Check how much comes in and how much goes out.

Sample Table:

Once you see this clearly, you’ll know how much you can invest monthly.

Do You Have Any Loans?

Suppose you’re paying a car loan of ₹7,000 per month. Or maybe a personal loan. You need to consider these while planning your investment amount. You don’t want to invest ₹10,000 and then struggle to pay EMIs.

Have Emergency Savings

Before investing in funds, keep some money for emergencies. Ideally, this should be 3 to 6 months of your monthly expenses. So, if your monthly spend is ₹30,000, aim for ₹90,000 to ₹1,80,000 in a savings account or liquid fund.

Check Your Insurance Cover

Are you covered in case of sudden illness or accident? Health and life insurance help you avoid breaking your investments for emergencies. Many people skip this step and regret it later.

Know Your Risk Level

Can you handle the ups and downs in your investment? If market falls make you panic, avoid high-risk funds. 

Young people can usually take more risk because they have time to recover losses, while older investors may prefer safer funds.

Create a Self-Financing Strategy

Starting an investment fund with your own money requires a clear plan. It's about setting aside a portion of your income regularly and investing it wisely. This approach ensures that you're not relying on loans or external funding, reducing financial stress and risk.​

• Set a Monthly Savings Target: Decide on a fixed amount to save each month, like ₹5,000.
• Automate Your Savings: Use auto-debit features to transfer money to your investment account automatically.
• Cut Unnecessary Expenses: Review your spending and eliminate non-essential costs.
• Increase Savings with Income Growth: As your income rises, increase your savings proportionally.
• Utilise Bonuses and Windfalls: Allocate a portion of any extra income, like bonuses, to your investment fund.
• Avoid High-Interest Debt: Steer clear of credit card debts and personal loans that can hinder your savings.
• Track Your Progress: Regularly monitor your savings and investment growth to stay motivated.​

Sample Monthly Budget to Support Your Investment Strategy:

Choose the Right Investment Vehicles for Your Fund

Selecting suitable investment options is crucial for growing your fund. Different instruments offer varying returns and risks. Understanding these can help you make informed decisions.​

Mutual Funds

Mutual funds pool money from multiple investors to invest in stocks, bonds, or other assets. Professional fund managers manage them. For instance, investing ₹5,000 monthly in a mutual fund with a 12% annual return can grow to over ₹10,00,000 in 10 years.​

Public Provident Fund (PPF)

PPF is a government-backed savings scheme with a 15-year lock-in period. It offers tax benefits and a fixed interest rate. Investing ₹1,50,000 annually can yield around ₹40,68,209 after 15 years at an 8% interest rate.​

Recurring Deposits (RDs)

RDs allow you to deposit a fixed amount monthly, earning interest over time. They are low-risk and suitable for short-term goals. For example, saving ₹2,000 monthly in an RD at a 6% interest rate can accumulate ₹1,25,000 in 5 years.​

Equity-Linked Savings Scheme (ELSS)

ELSS are mutual funds that invest primarily in equities and offer tax deductions under Section 80C. They have a 3-year lock-in period. Investing ₹1,00,000 annually can provide significant tax savings and potential high returns.​

Fixed Deposits (FDs)

FDs are a safe investment option where you deposit a lump sum for a fixed tenure at a predetermined interest rate. For instance, a ₹1,00,000 FD at a 7% interest rate for 5 years will yield ₹1,40,255 at maturity.​

Comparison of Common Investment Options (for ₹1,00,000 Investment):