Fast creation of wealth is appreciated and desired by everyone. It is always a good idea to put your money to work because of course; keeping your money idle won’t do you any good. By saying put your money to work, I mean invest your money. Investing could help you earn a little more to fulfill your long or short-term requirement of funds. Now the question which arises would be: “Where to invest?” Well, there are a lot of investment avenues like shares, bonds, debentures, commodities, mutual funds, and so on. The bigger the risk the more are your chances of success or failure. For the risk lovers, stocks are the go-to option as they can turn your fortunes overnight in both directions. But, for people with long investment horizons, mutual funds are the best.
Most Mutual Funds come with low risk and are relatively stable, hence they’re considered safer than stocks. It might oppose your common sense, but investment in mutual funds makes a lot of sense because they enable you to multiply your money aggressively. However, there are high yield stock bonds that are just as risky as stocks but generate income that is way higher than what stocks are capable of generating. The number of people going for this type of mutual fund is low as most people don’t want to go by the trial and error method when it comes to investing money.
For the people who want to take moderate and calculated risk, balanced mutual funds are ideal. There are a lot of options available in this category and can give the opportunity to the investor to reap humongous returns from their investment while keeping risk at the lowest level possible. As the name suggests, a balanced mutual fund has a combination of both equity and debt instruments and the mutual fund scheme can be customized to meet the investment targets of the investor.
As stated earlier, stocks can turn your fortunes in both directions, but mutual funds, on the other hand, have proven to be safer. But remember, the growth is slow and takes place over time. The greater the amount of your investment, the greater your returns can be in case of mutual funds. Although, mutual fund is not considered a hero of wealth generation, it is renowned for giving steady, regular and fixed income. The returns can be quite hefty sometimes.
For example, if you invest Rs.5 lakh in SBI mutual fund with a 3% rate of return per annum, then your mutual fund will give you Rs.15,000 in a year. This amount doesn’t seem much because the return period is only one year but if you invest the same amount for a prolonged period, chances are that you take back home a hefty sum of money. The bottom line is, the more you invest initially, the higher are your chances to become rich in a short period.
Management fees,more commonly referred to as ‘expense ratio’ can eat up your investment income quite significantly if the instrument you have invested in needs to be extensively managed. Stocks are required to be continuously traded as opposed to mutual funds. The appropriate thing to do would be to invest as much as you can and let that investment grow over time.
When you’re spoiled for choice, it becomes difficult to choose the right option. The returns that you earn from a mutual fund or any investment for that matter, are taxable and can have a sizeable impact on your tax obligation. Taxation on short term investments like shares are generally high and significantly increase your tax bill. In that case, you lose more than what you have earned.. Mutual fund investments are generally locked in for a long tenure and the tax rate charged is ordinary. So you take home much of what your investment has earned for you.
Mutual funds offer you a portfolio which is diverse and a diverse portfolio is what you need if you are looking to gain benefits and ultimately become rich from your investment. The bottom line is, yes, mutual funds can make you rich, not overnight but over time. You just need to start investing early, correctly, and with as much as you can.