How to make money by investing in Mutual Funds?
A lot of people wish to make money from equity markets. However, not every person has the knowledge and expertise to do so. Investing in equity markets directly is a risk not everyone is willing to take. So, they invest in equity markets through another investment vehicle i.e. Mutual Funds.
Here are a few things one should keep in mind in order to make money through mutual fund investing:
Invest for Long Term
If an investor invests for a long-term, he gets the benefit of compounding. When money is invested for a longer period of time, interest on interest is earned, thereby making the money compound into a large sum.
|Particulars||Value of monthly investment of Rs 10,000 invested for different periods|
|Monthly investment (SIP)||Rs. 10,000||Rs. 10,000||Rs. 10,000|
|No. of Years||10||15||20|
|Future value of the investment||Rs. 24,92,923||Rs. 56,52,071||Rs. 1,17,34,741|
The above table shows that a monthly investment of Rs. 10,000 for 10 years results into a future value of Rs. 24,92,923. If an individual remains invested for 5 more years, i.e. 15 years, the value becomes almost double - Rs. 56,52,071. Investing for a period of 20 years results in a future value of Rs. 1,17,34,741.
So, a monthly investment of Rs. 10,000 can help you become a crorepati in 20 years.
Mutual fund companies distribute earnings to its shareholders in the form of dividends. This payout is usually on a quarterly basis, from the interest generated by the fund’s investments.
Know all the expenses
Investing in mutual funds only for the purpose of tax saving is not the right approach towards investing. Make sure how much tax you are saving on the total amount invested. Also, make a note of all the other expenses - exit load, expense ratio etc. The bottom line is that you should get the value for what you pay.
Goal-based mutual fund investment
A lot of people park their money in mutual funds in order to meet certain goals at different life stages.
If an individual’s goals are 1-3 years away, he should invest in debt-funds. Floating rate funds is the best option in a rising interest rate scenario, while in a falling interest rate scenario, income/bond funds are considered to be a good investment.
If the goals are 3-6 years away, one should invest in a combination of debt and equity based funds.
- If the goals are 8-10 years away, equity investment is the best option. Equity has the potential to beat inflation and provide exceptional returns over a longer period of time.
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