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Can I Become Rich By Investing In Mutual Funds?

This article is contributed by Mr. Laxman Balagani.

People have always wondered how to get rich in the stock market fast and without any hassles. You should know from the outset that stock market investments are no get-rich-quick scheme that works for everybody.

As always, there is a sizable amount of skill, expertise and knowledge behind success stories in the market while the luck factor cannot be discounted as well. People have earned gains beyond their wildest dreams at times while some have lost all their money and hard-earned savings as well.

Such is the nature of the stock market and proper expertise counts above all else.

So if you are thinking how much money should I invest in a mutual fund to get rich, it all depends on your definition of rich.

The corpus that you are targeting should be carefully outlined. This cannot be the same as someone else. Do not blindly pick a number if someone else is doing it.

First analyze your lifestyle costs, household expenditure, liabilities and financial position currently. Thereafter, factor in the inflation rate and increase in household costs and other expenses by the time that you hope to get your amassed corpus in hand. Thereafter, make a provision for other financial goals, big-ticket purchases and emergency money. Add up the final amount likewise. Have some breathing space as well.

Once the number is clear to you, check out mutual funds and other investment avenues for accomplishing your financial goals. You should diversify your portfolio and invest for a longer duration in order to benefit from the power of compounding. Track your investments, do not miss payments and stay financially disciplined.

become-rich-with-mutual-funds

Is it worth investing in mutual funds?
Of course, you should consider investing in mutual funds that have offered good returns over the years including the SBI Focused Equity Fund for instance. Mutual funds give you a smaller-ticket entry into the world of financial investments. You can start investing in mutual funds through smaller amounts every month via systematic investment plans or SIPs. You can start your investment journey with an amount as less as Rs. 500 and gradually scale it up with increases in your income.

Mutual fund investments, particularly if you have a long term investment horizon and are patient enough to ride out temporary market fluctuations, can be quite rewarding. You benefit substantially by investing small amounts every month (which gives you averaging benefits) while the power of compounding helps you build a substantial corpus for the future.

Of course, choosing the right mutual fund is very important. Invest in fund-of-funds like the Franklin US Opportunities Fund and others only after doing your due diligence and homework on its type, investment style, expected returns and historical market performance.

The beauty of investing in mutual funds is that with SIPs, the risks are spread out and compounding ensures good wealth creation.

At the same time, along with diversifying your investment portfolio, you can earn tax-efficient and inflation-surpassing returns. Funds are managed professionally by experts who will naturally align their strategies and goals towards helping you earn considerable returns in the future. This is a major benefit of investing in mutual funds.

Key aspects that you should note
How fast do mutual funds grow? Experts usually recommend a period of 5-7 years for investments in mutual funds. Short-term investments come with their own fair share of risks and rewards and suit specific purposes. However, for building long-term wealth, the longer you hold onto your investment, the more lucrative it will be for you as mentioned earlier. Have an investment duration of 5-7 years as recommended or even more and you are likely to reap stellar rewards on your deployed capital accordingly.

You should know that there are various types of mutual funds that are available in the market nowadays. They are classified on the basis of various factors including the type of scheme, objective behind the investment and nature of the mutual fund scheme as well.

Upon classification on the basis of the investment goals, funds can usually be of various types like fixed-income funds, equity or growth funds, tax-saving funds, debt funds, ETFs (exchange traded funds), balanced funds, liquid funds or money market funds and even gilt funds.

Mutual funds may also be either open-ended or close-ended plans. When they are divided on the basis of their specific nature, they may be debt, equity or balanced types.

The fund value will be worked out on the basis of the NAV (net asset value) which is the specific value of the portfolio net of expenditure for the fund in question. This is worked out, post every business day by the asset management company or AMC that you invest with.

An administration fee will be charged by AMCs for covering brokerage, salaries, administrative and advertising expenses. This is worked out as the expense ratio. The lower this ratio, the lower your overall investment costs in mutual funds.

Loads may also be charged by AMCs which are essentially sales charges that are incurred by companies owing to costs of distribution. So make sure that you keep an eye on these costs before you invest in a mutual fund. Otherwise, higher expense ratios may eat into your overall returns and hinder profitability from your investment.

Keep the above-mentioned factors in mind while investing in mutual fund schemes available in the market.

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