As you may know, investing is one of the best ways to create wealth. Through investment, you can make your money do some work. You can expose your investment to a certain degree of risk and thus you can make it work to generate long-term income depending on your investment goal.
In the quest of generating high returns investors often end up losing money by investing in wrong investment schemes. For example, an investor who doesn’t have sound knowledge about equities is bound to lose money if he opts for direct equity investment. Thus if you want to enter the equities market with the objective of wealth creation you can choose mutual funds.
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A mutual fund is an investment option for investors who want to invest money in tradable securities and stocks. A mutual fund scheme pools money from investors with a common investment objective. The money is then invested in a portfolio of financial assets like stocks, bonds or a mix of both. Mutual funds are safe options to enter the investment market as they have a certain advantage over direct investment. They are usually managed by professional fund managers who take advantage of the market volatility and helps investor reach their financial goal.
In this section, we will discuss how you can create wealth through mutual fund investment.
To achieve your investment goal through mutual funds you need a strong investment portfolio that has the right balance of equity and debt instruments. However, to do this you need to understand how mutual fund portfolios balance the risk factor.
The fund manager of mutual fund schemes allows investors to choose funds based on their risk-bearing ability. Here are three ways you can invest in mutual funds:
Equity mutual funds aim at generating high returns by investing in a portfolio of stocks across all market capitalizations. Since equities are risky asset classes of mutual funds they have the ability to ride the market risks and generate significant returns. These schemes invest 60% of their assets in the equity shares of companies in a suitable proportion. Equity mutual funds are known to deliver returns within the range of 10% to 12%. However, the returns greatly depend on the overall market movement and economic conditions.
Equity Mutual funds mainly invest in securities of companies that are known to bear a certain amount of risk. The amount of returns you can generate depends mainly on two factors, the performance of the funds and the efficiency of the fund manager. The returns you get on maturity fully depend on how your mutual fund portfolio has worked during the market volatility. Portfolio of equity mutual fund mainly invests in specialty funds that target sectors like hospitality, infrastructure, banking and fast-moving consumer goods.
See Also: Mutual Funds with High Returns
Debt mutual funds on the other are low-risk debt instruments. These are a much safer investment option and are an ideal investment opportunity for investors who want to enter the mutual funds market and the traditional investors who are not open for equity exposure. You can invest in debt mutual funds that would, in turn, invest your money in a portfolio of top-rated debt securities like government bonds, treasury bills fixed-income assets and company debentures.
Since debt funds grow your money without risk exposure, they generate lower returns when compared to equity mutual funds. The investment returns range from 7% to 9%. The main aim of these funds is wealth accumulation through interest accrued and steady appreciation of capital. The assets generate a fixed income throughout the investment tenure. Though there is no equity exposure, debt mutual funds are affected by the interest rate changes in the economy.
These mutual funds invest in a mix of asset classes. In some of the hybrid mutual fund portfolio, the equity investments are higher than the debt investments and vice versa. The risk and the returns are balanced by investing in certain proportions of equity and debt securities. The hybrid funds allow you to generate wealth by balancing the portfolio risk and appreciating money in the long-run. The fund manager allocates your money into equities and debt instruments in varying degrees based on the investment objectives of the investors. There are no guaranteed returns on hybrid funds, but it allows appreciation of your capital based on rupee cost averaging.
See Also: How To Invest In Mutual Funds Online?
Mutual funds are one of the best ways to take advantage of equity investment. It shields your investment to a certain degree and helps you contribute money through regular contributions. However, you must remain invested for a long tenure to generate significant returns through mutual fund investments.
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