How to make money by investing in Mutual Funds?

Nutan Gupta

20 Dec 2016

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
Interest Rate 14% 14% 14%
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.

Dividend Incomes

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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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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How to make money by investing in Mutual Funds?

Nutan Gupta

20 Dec 2016

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
Interest Rate 14% 14% 14%
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.

Dividend Incomes

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.

Have Referral Code?