The most familiar investment option available in India after FDs (fixed deposits) is mutual funds. Mutual funds investment allows investors to earn through the power of long-term compounding. However, investing in these funds does not always guarantee high returns. The reasons can bean indisciplined approach towards investment or lack of knowledge about investing.
Here are the things that you must do as a mutual funds investor to get high returns:
Stick To Your Investment Decisions
You need to invest in the right set of securities and patiently go through the ups and downs of the market for an extended period to create wealth. Making hasty investment decisions regarding your mutual fund investment will only result in lower returns. Choose the best investment vehicle to achieve your financial goals. Your investment decisions should not change because of market volatilities. Stick to your long-term plan to earn higher returns.
Go For Direct Mutual Funds
If you know how the market operates, then you sh0uld prefer direct mutual funds over the regular variant. If you opt for direct mutual funds, you can save up to 20%, given that you stay invested for 20 years or more. The difference in the expense ratio of direct and indirect mutual fund plans is 1%. This difference accumulates to be a significant amount over the long term.
For instance, if you invest Rs 10,00,000/- in a regular mutual fund plan for 20 years, then it will grow to Rs 96,46,293/- assuming CAGR (compounded annual growth rate) of 12%.
Whereas, if you invest the same amount in the direct plan of the same mutual fund, it could grow to Rs 1,15,23,087/- at a CAGR of 13%. Rs 18,76,794 or 19.45% is the difference between the two variants of the same mutual fund.
Create An Emergency Fund
Mutual fund investors who have just begun investing often invest all their savings in one go. This creates a void in their ability to meet emergency money requirements. For instance, if you lose your primary source of income or there is an emergency, you need immediate cash. Mutual funds investment can’t help you as it takes 1-3 business days to redeem your funds. Thus, it is advisable to have an emergency fund worth at least six months of living expenses.
Be Aware Of The Taxation Guidelines
As a mutual fund investor, you should be aware of the taxation guidelines applicable to your mutual fund investment. Tax on mutual funds depends on the investment horizon and type of fund. Investment horizon is of two types:
- Short-Term (less than a year)
If you sell your holdings in an equity mutual fund before a year, then a flat rate of 15% STCG (short term capital gain) is applicable.
- Long-Term (more than a year)
If you sell your mutual fund investment units after a year, then LTCG (Long Term Capital Gain) tax is applicable. As per LTCG tax 2018, gains of over Rs 1,00,000/- in a financial year are taxable at 10%.
Track Your Investment’s Performance
Keeping track of your mutual fund investment is as important as sticking to one long-term plan. Timely reviewing the performance of your funds would keep you aligned with your investment goals. This will also help you to weed out the funds that are not giving you returns as good as you expect. You should give your mutual fund ample time to grow to earn decent returns.
Take into account the tactics mentioned above to grow as a mutual fund investor and to get good returns. It is also advisable to take help from professional investment counsellors to get a better understanding of the investment world. Reputable financial experts such as FinEdge, take all things into consideration and give you the advice to match your financial goals.
