How to Make Money by Investing in Mutual Funds?

Most of us are conscious about money or profits one can gain when it comes to investing. We are curious to find out how much profit we will make before even knowing about the investment product. This is the reason why people choose fixed deposits blindly as it is perceived to offer better returns. But do you know that withdrawal from mutual fund investment can provide many more hidden benefits? As a smart investor, you need to think clearly about mutual funds to make money.Before understanding the money earning aspect of mutual funds, let’s get to know what mutual fund is and how mutual funds work . A mutual fund invests in equities, debt, stocks, bonds, and others.A fund manager usually pools the money from a group of investors and creates an investment portfolio that will help to meet the investor goals. Basically, the manager organizes nearly every type of investment strategy, and it would be safe to say that there is a mutual fund for every investment goal or objective. There are various types of mutual funds, these include -

• Equity Mutual Funds
• Debt Mutual Funds
• Hybrid mutual funds

These are the broad categories, which are further classified to include many other types of mutual funds. Let’s understand the relation between Mutual Funds and Making Money:When you’re selecting a mutual fund type, this helps determine how much money you’re going to earn. Assuming you choose to invest in bonds, you’re going to earn money in the form of interest income. On the other hand, if you opt for a stock fund, you will earn gains, either in the form of capital gains (stock price) or dividends. These payments are nothing but the share of the company’s distributed profits. To be precise, mutual fund investment lets you make money in three different ways; these include:

1. Income from Dividends: Dividends is basically the distribution of the company’s net profits, which the shareholders receive as a reward when they invest in the company’s stocks or bonds. Companies pay out dividends monthly, quarterly, or annually. Note that the dividend income is taxable in the hands of the recipient as per the applicable tax slab rates. Taxpayers earning dividend income of more than Rs.10 lakh are required to pay tax at the rate of 10%.
2. Capital Gain: When you invest in a capital asset, and there is an increase in the asset value, it is known as a capital gain. The asset can either be a financial asset (stocks, bonds, etc.) or non-financial assets like real estate, machinery, etc. As an investor, if you sell the asset for a higher price than its previous purchase amount, the difference you get is treated as a capital gain.In the mutual fund investment category, capital gains depend on the holding period – short-term and long-term capital gain. If you’re holding a mutual fund for less than three years, it is a short-term capital gain. On the other hand, if the investment period exceeds three years, then it is considered as long-term capital gains.
3. Increase in Share Price: This happens when the market value of a fund increases after deducting the expenses, then the value and share price of the fund also increases. In a mutual fund scheme, if there is an increase in the price of fund holdings and you decide to sell the same, you make money out it.

Saving for the future should always be a priority. However, opening a savings account wouldn’t suffice when you’re thinking about financial security for the future. You need to explore an investment field where your money gets multiplied. This is how you make your money work for you. Investing in a mutual fund is the best way to accumulate savings. Mutual fund investment can help you save money directly or indirectly.

• With mutual funds, you can plan for your retirement and accumulate a considerable corpus to live a happy retired life. You can choose to invest in pension funds, which is said to offer up to 11% interest, making them the best-suited option for retirement planning.
• A person can invest a small amount every month and can still earn high returns. It encourages you to participate in a ‘pooled’ approach. This is different from securities investment, where you’re required to invest all at once for a certain period. Hence, mutual funds are the best as you can start small and eventually make large investments once you have understood the market well.

To sum up, if you have surplus cash and want that money to work for you, you should definitely think about mutual fund investment. Unlike savings, investments can help you build considerable wealth for your future. The early you start, the more risk you can take and better returns you can realize in the long-run.Investing in a mutual fund needs to be an informed decision-making process. Whether you decide to start with a lump sum or Systematic Investment Plan approach, every decision should be based on your investment goal, holding period, and risk-taking ability. It is best to consult a financial advisor as they are experts who know how to pick the best securities that will generate better returns.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.