Can Mutual Fund Help Me Create Wealth?

“Most people don’t plan to fail, they fail to plan.” Proper planning is a tedious yet important part of our financial lives, not only helps us to segregate ‘what to do’ and ‘what not to do’ but also assists us to manage our wealth and unfold various ways for its creation.

 

Talking about wealth creation in layman’s term, we all know that it simply refers to the multiplication of our existing wealth but what we fail to understand is its know-how and implementation. “Investing regularly for a long time is the key to wealth creation.” There are different ways to create wealth through investment, be it a recurring deposit or a systematic investment plan in an equity mutual fund, whatever you may choose, choose it with all your dedication and determination because my friend, discipline and consistency is the technique to climb this ladder without any major downfalls…

 

 “Never depend on a single income. Make investment to create a second source.” As rightly quoted by Warren Buffet, this phrase holds the importance of investment in one’s life.

 

Now talking about mutual funds, there has always been a dilemma if one could create wealth through mutual funds. Let us assume, you are in an elevator with five other people talking about investments, and you happen to ask them,  “Can equity market help me create wealth?” there are high chances that they would tell you either of the following myths that they have fallen prey of :

 

1. "No one can earn in equity market'

2. "Equity market is sheer luck"

3. "Equity market is only for young"

 

And interestingly, you are likely to fall for this too if you lack the proper knowledge.  These are, however, just the myths people usually believe and develop a negative impact of investing on themselves and others in contact with them.  This is where Mutual funds step in and help you invest in the equity market without much knowledge in markets. But how do

 

 

Mutual funds basically, are an open ended professionally managed investment fund that pools money from many investors to purchase securities. There are various types of mutual funds, such as:

 

i) Fixed Income Funds: These funds buy investments that pay a fixed rate of return like government bonds, or corporate bonds. Returns earned by these funds are almost on par with interest rates prevailing in market.

 

ii) Equity Funds: Equity funds invest in the shares of different companies. There is a fund manager who manages all the funds allocated in various avenues and they generate better returns than term deposit or debt funds but it's a little bit riskier than the debt fund or term deposit. And we know that risk bearing capacity of each individual is different so depending on one’s ideology one can also go for equity fund

 

iii) Speciality fund: Under this, the fund manager allocates the funds exclusively into a single industry, sector, or region, etc. For example, a speciality fund may only invest in telecom companies or in pharmaceutical companies, or probably in any energy companies.

 

iv) Fund of Funds: A fund of funds is an investment fund that invests in other types of funds. In simple words, it's a portfolio that contains different underlying portfolios of other funds.

 

Along with the flexibility of choosing the type of fund you want to invest in you have the freedom to choose the amount and frequency of your investment. You can go for a one time lump-sum investment or a regular Systematic Investment Plan (SIP) based on availability of funds. With disciplined investment through SIP even smaller amounts can grow to huge fortunes given sufficient time and patience. Hence it is safe to conclude, that Mutual funds is a wise choice for investors who want to build wealth over time but lack in-depth knowledge of markets and are unable to put in required time and resources.