Invest In Mutual Funds To Make Money

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Invest in Mutual Funds to make money

If you think about the internet as real estate, it really becomes clear how you’ll be able to earn money online. Investing in mutual funds is one easy and less stressful way to make money. Essentially, a mutual fund is a pool of money invested by a group of people- individuals or companies.

How Do Mutual Funds Work?

Shared by thousands of investors, a mutual fund is managed collectively to earn the highest possible returns. Typically, a mutual fund company invests the money of a group of people and prepares an investment portfolio on their behalf. A portfolio manager is then assigned to each of the funds and is responsible for investing money in stocks, bonds, and other such financial securities.

You can also invest in mutual funds yourself, without taking the help of a mutual fund company. You can buy mutual funds from the fund house through AMCs or online websites. Simply visit the fund’s web page or call them to request information and an application.

Types of Mutual Funds

1. Debt Funds

Debt Funds are invested in fixed income assets such as government bonds and company debentures. The major advantage of these funds is that they provide fixed returns and are thus considered a safe investment avenue.

2. Equity Funds

Equity Funds are invested in equity stocks or shares of companies. These funds are characterized by high-risk and may offer high returns in the long run.

3. Balanced Funds

Also known as hybrid funds, balanced funds feature a combination of equities and fixed income securities such as debentures. The aim of these funds is to strike a perfect balance between risk and return.

How To Invest In Mutual Funds?

  • Analyze Your Risk Appetite

The best thing about mutual funds is that they allow you to begin investing with an amount as low as Rs.100. But as they say- ‘Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully.’

Though high risk is associated with high returns, uncertainties may pop-up any time and affect the market. Therefore, it is advisable that you consider all the risks of this venture before making an investment decision.

Type of RiskType of Mutual FundAssociated Risk
Market RiskAllDecrease in value of investment due to changes in market conditions
Liquidity RiskAllLack of market to sell funds
Interest Rate RiskDebtChange in interest rate
Country RiskAllDecline in the value of foreign investment due to political instability

As a knowledgeable investor, you must spread your funding across various assets and securities, to reduce the overall risk. However, selection of the kinds of funds must be highly based on your risk appetite, investment duration, and financial goals.

  • Plan Your Investment Period

You will need to decide whether you wish to go for a short-term investment or a long-term investment. If you wish to invest your funds for less than 5 years, it will be advisable that you opt for Debt Mutual Funds. However, if you have an investment horizon for at least five to seven years, you can invest in equity mutual funds.

TypeShort-term InvestmentLong-term Investment
Equity Mutual FundsLess than 12 months12 months & more
Debt Mutual FundsLess than 36 months36 months & more
Balanced Mutual FundsLess than 12 months12 months & more
  • Mutual Fund Taxation
    When you redeem or sell a mutual fund unit, you are required to pay tax on the profit or capital gain that you have made. The applicable tax rates for different types of mutual funds are given below-

Capital Gain Taxation

TypeShort-term Capital Gain TaxLong-term Capital Gain Tax
Equity Mutual Funds15%10% without indexation
Debt Mutual FundsAs per income tax slab20% without indexation
Balanced Mutual Funds15%10% without indexation

*indexation- a method of adjusting tax payments by employing a price index that adjusts for inflation

  • Review Your Investments

You must keep a regular check on the investments that you make to evaluate the performance of the funds. Performance analysis will enable you to track the changes in the market conditions and determine the factors that affect your investments.

What Is The Average Mutual Fund Return Rate?

The income in mutual funds is earned in the form of a dividend on stocks and interest on debentures or bonds. If you own a stock fund (equity or preference shares), you will earn through a fixed or variable dividend income. In case of debentures or bonds, however, you will receive a fixed interest amount on your investment. Alternatively, if the fund specializes in real estate investment, you might make money from rents, property appreciation, or profits from business operations.

The profit that you gain through mutual funds depends entirely on the type of fund and the amount invested. The trick of this business lies in making investments for longer periods to receive the complete advantage. You may not earn huge profits instantly, but the investment may prove healthy in the long-run.

Combine the creativity and curiosity of a centaur, and the dependability and attention to detail of a ram, Surabhi is what you get! You wouldn't be entirely wrong if you call her Auguste Rodin's muse - her friends and family bet that 'The Thinker' is inspired by her. She's also a pluviophile who loves cracking not-so-appropriate meal time jokes, as well as binging on romance fiction and Lana Del Rey.

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