For anyone who has invested wisely mutual funds have generated a lot of wealth in the last few years. In fact the best tax 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.
