Can you get Rich through Mutual Funds?

 

Everybody knows what mutual funds are. Mutual funds are a type of investment vehicle that pools money from multiple investors to invest in various securities such as stocks, bonds, and other assets.

They are designed to provide investors with the opportunity to invest in a diversified portfolio of assets and potentially achieve long-term financial goals. It's important for investors to have a long-term perspective when investing in mutual funds, as short-term market movements can be unpredictable and may lead to emotional investment decisions. As it also applies to equity, your time horizon of investment, risk appetite and your investing corpus are factors that will affect your mutual fund journey. The earlier you start, the better it is.

Investing in Mutual Funds is something that today’s generation can start doing early. Once you start earning, if there is a savings component available, you can regularly invest in different mutual funds via an SIP (Systematic Investment Plan) based on your return expectations and risk appetite. Because you are still young, you can take higher risk by investing Equity Mutual Funds. They can be Index Funds (Passive Funds) or Active Funds (E.g.: divide the SIP among different market capitalizations). This will help with diversification. By investing regularly, you can take advantage of market fluctuations which can help reduce the impact of market volatility on your portfolio and potentially increase your returns.

One way to potentially increase your wealth through mutual funds is by investing regularly and increasing your investments as and when your income increases (instead of increasing your expenses). This is known as dollar-cost averaging, which involves investing a fixed amount of money at regular intervals, regardless of market conditions. The growth rate of our investments can change unpredictably and is out of our control. However, we can control the rate at which we invest our money. In order to achieve financial independence, it's important to invest consistently and increase the amount of money we invest over time. This is because the rate at which we invest can have a greater impact on our wealth-building journey than the returns we get on our investments. By investing regularly and increasing our investments over time, we can potentially achieve our financial goals, even if our investment returns fluctuate.

It's important not to chase after mutual funds that have had the highest return in the past year. Although a mutual fund return calculator may show that we could make a lot of money with a high return percentage, there's no guarantee that the fund will perform the same way in the future. Instead, we should be careful and consider funds that have consistently given lower returns year-on-year, rather than just one-time high returns. By choosing funds that have a track record of steady performance, we can reduce our risk and potentially achieve more reliable returns over the long term.

Choosing the right mutual fund is also important because all mutual funds have different characteristics. You can find more details in my last blog post “Time to Bring Long Term Investing Back!”

Hope this helps young novice investors who are new to the markets and wish to start their investing journey via mutual funds!

Happy Investing!!!!