For anyone who has invested wisely mutual funds have generated a lot of wealth in the last few years. In fact the top saving funds have generated close to 20 % of returns on an annual basis. In case if you are planning to grow your wealth then proper planning and an investment strategy would do the trick. The 3 ways by which you can generate wealth by mutual funds are as follows
Regular investment
In case if you are planning to invest
regularly in mutual funds opt for a SIP. This is a monthly investment plan
where money is put on to a mutual fund chosen by you. The minimum amount you can invest is Rs 500
and you can stop it anytime as per your choice.
The main reason why this method is
beneficial is because it takes cost averaging. Markets are vibrant and move from one extreme to another.
Same is the case with mutual funds and the only way to overcome this barrier is
by regular investing.
Once you are investing regularly there is
no need to worry about market conditions. The moment markets are down you gain
more mutual funds for the same amount. If the markets are up you are bound to
gain fewer mutual funds. This would mean that you do not end up paying a higher
price for your investments. But in case if you have a large sum of money to
invest it does not make sense to sit with it and follow a SIP.
Long term investment
Mutual fund would provide the best returns
if you invest for a longer period of time. this requires patience as once the return is lower than expectations
investors panic and end up withdrawing funds. In the long run this proves to be
a wrong strategy.
Some novices commit the mistake of
investing when the market is at a high and withdraw funds when the market is at
a low. When you are investing in mutual fund consider the long term performance
of the funds. This would give you a fair idea on how it has performed during
the good and the bad times.
For example if you have gone on to invest
in 2007 and checked returns in 2009, then the chances of losses are obvious.
Once you invest your funds for a longer period of time you take the power of
compounding into account.
Rebalancing
Once again performance of mutual fund is
dependent upon the market conditions. No way you can invest in a mutual fund
and completely forget it over a given period of time. it is not about market
conditions. Sometimes you might have invested in a mutual fund and it is not
performing as per the required standards, whereas others might perform at an
exceptional level.
The best way to check out mutual funds is
to look at its ratings. Most online sites provides access to various types of
mutual funds. Sometimes the need arises where you might have to switch funds.
