How To Make Money From Mutual Funds In India 2025

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.

What are Mutual Funds?

A mutual fund is a monetary instrument where your money is pooled with those of other investors to buy stocks, bonds, and other securities. Professionals oversee the money, study the market, and make investment choices based on the plan you previously discussed.

Why should you invest in Mutual Funds?

The Indian Mutual Fund industry is growing at a rapid pace. The general population’s rising interest in investments and financial literacy has given a major boost to the mutual funds market. There are several reasons and statistics that would justify this increased interest in the mutual fund industry.

1. The average assets under management (AAUM) of the Indian Mutual Fund Industry stood at INR ₹39,46,257 crore in February 2023 and the industry continues to grow at a CAGR above 21.5%.
2. The investors earned 7.8%, 6.3%, and 6.5% interest on the investment made in mutual funds for three-year, five-year, and ten-year plans which ended on June 30, 2022.
3. Most of the places with the maximum growth in mutual funds penetration (75% and above) is happening in parts of Central India, Haryana, Himachal Pradesh, and Bihar.
4. In a recent survey, 40% of those surveyed were likely to invest in equity and mutual funds, and 15% were likely to spend on property, cars, and jewelry in 2022.
5. The average investment in every individual retail investor account is ₹68,086.

Types of Mutual Funds

1. Open-Ended Funds

When and how many units can be purchased are not limited by these funds. Throughout the year, investors have the option to enter or exit at the current net asset value. When an investor wants liquidity, open-ended funds are the best choice.

2. Close-Ended Funds

Units in these funds may only be bought during the initial offer period. At a specified maturity date, units may be redeemed. These schemes are frequently posted for trading on a stock exchange to offer liquidity. In contrast to open-ended mutual funds, the units or stocks must be sold through the stock market at the current share price in order to be sold after being purchased.

3. Interval Funds

These funds combine the benefits of both open-ended and close-ended funds because they can be opened for share repurchases at various points over the fund’s tenure. During certain times, the fund management business makes an offer to repurchase units from current unitholders. Shares may be sold by unitholders in favor of the fund if they choose.

4. 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.

5. 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.

6. 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.

7. Money Market Funds

These are funds that put money into things like liquid securities like CPs, T-Bills, etc. They are regarded as secure investments for people seeking quick but moderate returns on spare money. Cash markets are another name for money markets, and they come with risks like credit risks, reinvestment risks, and interest risks.

Best Ways to Earn Money from Mutual Funds in India

1. Dividend Payments

A fund allocates a portion of the dividends or interest it gets from the securities in its portfolio to its investors. You have the option to either receive allocations directly or have them reinvested in the mutual fund when buying stocks.

2. Capital Gains

A fund generates a capital gain when it sells security whose value has gone up. The majority of funds give any net capital gains to investors on a yearly basis (and when a fund sells a security whose value has dropped off, this represents a capital loss). Investors may face a noteworthy tax bill in a year with considerable capital gains allocations, particularly high-net-worth people who will pay higher capital gains tax rates.

3. Net Asset Value

After the market closes and all underlying assets have been evaluated, purchases of mutual fund shares are final. The cost per share of a mutual fund is the net asset value or NAV. The cost to buy shares of the fund rises in line with the fund’s worth (or the NAV per share). Similar to when the price of a stock rises, you don’t get distributions right once, but your investment is worth more and you could profit if you chose to sell.

Active vs Passive Investing

Active investing, as the name suggests, is a hands-on approach and needs a portfolio manager to be present. Active money management aims to outperform the stock market’s average returns and make the most of short-term price fluctuations. It requires a far more thorough examination and the knowledge of when to enter or exit a specific stock, bond, or asset. Typically, a portfolio manager oversees a team of analysts who analyze both qualitative and quantitative data before casting visions into the future to predict where and when that price will change.

Passive investing is a very economical technique to invest because passive investors keep the quantity of buying and selling within their portfolios to a minimum. The tactic requires a buy-and-hold mindset. That entails resisting the urge to respond to or predict the stock market’s next move in advance.

How Does 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.

Benefits of Investing in Mutual Funds

1. Risk Diversification

Since diversifying portfolios is one of the essential investing principles, using a mutual fund can be a simple and effective way to achieve this objective. They make investments in various businesses in a wide range of sectors and industries. Because not all equities lose money at the same time and in the same amount, diversification lowers risk.

2. Low Initial Investment

By making monthly SIP investments in mutual fund schemes of your choice, you can create a diversified mutual fund portfolio for as little as Rs 500. Additionally, you have the choice to invest using a systematic investment plan (SIP) or a lump sum. A SIP, however, has the ability to minimize overall investment costs while emitting the power of compounding gain when compared to lump sum contributions.

3. Liquidity

You can purchase and sell your units at any moment if you invest in open-ended mutual funds, which are what most funds are. The fund’s net asset value (NAV) for the day determines how much your overall value is redeemable or purchasable.

Even closed-ended funds can have liquidity. Closed-ended funds are listed on an exchange after the New Fund Offer (NFO) ends, even though their duration is fixed. These funds can be easily purchased and sold once they are listed on a stock exchange.

There is always a high level of liquidity, whether you purchase open-ended or close-ended funds. Be aware that some mutual funds, such as Tax Savings Funds (ELSS), have a three-year lock-in term.

4. Transparency

An additional benefit of mutual funds for retail and HNI investors is transparency. Investors are always aware of the market value of their mutual fund units since mutual fund schemes make their Net Asset Values (NAVs) public at the end of each business day. Mutual funds release Monthly Fund Factsheets each month that lists all of their mutual fund schemes’ portfolio holdings (including the securities that make up each scheme’s portfolio and their weights). Investors are informed of the monthly investments made by the fund managers.

5. Tax Advantage

Tax-saving mutual funds are one of the monetary instruments that qualify for tax deductions under Section 80C of the IT Act, up to a maximum of Rs 1.5 lakh each fiscal year. Due to its bigger returns and the shortest lock-in period of 3 years among all Section 80C selections, the Equity Linked Savings Scheme (ELSS) has grown in popularity among Indians in recent years as a tax-saving option.

6. Professional Management

The main benefit of investing in mutual funds is that they are run by qualified and experienced professionals supported by a committed investment research team that analyzes businesses’ performance and future prospects and chooses appropriate assets.

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.

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.

• 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

*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?

Mutual Funds are one of fast way to earn money online in India. 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 the 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.

Things to Consider as a Beginner

1. Fix an Investment Goal

Setting your financial objectives, spending limit, and time horizon play a big part in your investment decisions. This will help you in deciding how much you may set away for investing, and you must also invest in accordance with your risk profile.

2. Shortlist and Choose One Mutual Fund

To choose the best investment from the many mutual fund schemes offered in each category, you must evaluate and compare them. Investors shouldn’t ignore aspects like the portfolio components, assets under management, expense ratio, and credentials of the fund manager.

3. Go for SIPs instead of Lump-sum Investments

For people making their first investment in equity instruments, systematic investment plans (SIP) are recommended. SIP allows you to spread your investments out over time and invest across market levels, whereas a lump sum investment could put you in danger of missing a stock market high. You may average your investment costs and increase your long-term returns by using the benefit of rupee cost averaging that comes with SIPs.

4. Seeking Advice from a Financial Advisor

It can be tedious and overwhelming to invest in a mutual fund from beginning to end. There are thousands of mutual funds to select from; therefore, it is also necessary to keep an eye on their performance. If selecting the best mutual funds seems like a huge effort to you, seek the assistance of a mutual fund specialist or distributor.

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