Investing in mutual funds is one of the most popular and effective ways to create wealth for the future. It is also a great way to generate passive income.
This is due to the appealing long term returns and diverse investment options. Investors can also choose to invest in funds based on their financial goals and risk appetite.
However, you should remember that wealth creation is a long term journey with no such thing as a free lunch. Hence, it is important to keep a few pointers in mind before you begin your wealth creation journey using mutual funds.
The Power Of Compounding For Wealth Creation
Compounding is a process in which the total value of an investment increases as the interest on the principal and its investment earn interest. With the compound interest method, you can witness a mounting increase in the overall value in your investment.
The 15*15*15 rule can help an investor generate wealth using compounding. It suggests that if you invest a sum of ₹15,000 per month via SIP in a fund that gives 15% returns for 15 years, you can generate revenue up to ₹1 Cr. You can further read about the magic of compoundinghere.
5 Things To Remember Before Investing In Mutual Funds
1. Identify Your Risk Level
It is important to consider the risks involved before making an investment. If you are just starting out and are tight on money, it is advisable to invest in a low risk investment such as mutual funds.
As you continue to invest and learn more, you could start to broaden your horizons.
2. Set Goals
Goal based investing has its benefits. For starters, you would know exactly how much wealth you need to invest based on short, mid and long term priorities.
3. Get Quality Advice
A proven advisor like Cube’s mutual fund advisor, Wealth First can help you invest in a handful of the best options. Otherwise, you would be left with choosing from several thousand mutual fund options.
There are other benefits to getting quality advice. It'll save you time and effort and long story short, you can sit back and relax while an expert picks the mutual funds for you.
4. Speak To A Trained Financial Professional
Consulting a trained financial professional could bring clarity to an investor’s decisions by working through apparent mistakes before inaccurate decisions cost them money.
5. Think Long Term
An outlook on the future with a focus on long-term investment can amplify profits for almost any investor. Mutual funds especially are long term instruments known to create wealth over 5+ years.
Patience and perspective can help you pay your future self instead of chasing short term trends.
This video will explain the benefits of long term investing
Mutual fund investment plans help create an opportunity for investors to diversify their portfolio, provide liquidity and distribute the risk burden.
There are ways to generate lucrative returns for the future with the right mutual fund investments. But it's important to have a proven advisor by your side and a trained financial professional who understands your financial goals and needs.
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