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BECOMING RICH WITH MUTUAL FUNDS?

It is virtually impossible to determine with 100% accuracy the full success of investments in
mutual funds, no matter how many people are in the market or not. The main reason is it is a platform where there is no constant, for every one minute, there is a change in the market, which causes rise and fall in the shares, and their investment will be lost and gained.

The funds are present to take care of the money of people who don’t have time or

have some or any expertise to invest in stocks. They can give you returns that will

beat inflation most of the times, and you can increase your money by anywhere

between 12% to 24% over 5 to 10 years depending on your timing of the purchase of it.

The above returns surely are not worst. But two problems are most

likely to hit and prevent you from getting super-rich, out of the league they are:

1) Timing of purchase: You are not expected to get the right timing every-time.

Those who bought stocks in 2001 & exited in 2007 end can understand how

critical the timing can be. They made 25% to approximately 35% returns

compounded annually. However, those who invested in 2007 and exited in

2013 pretty much were sitting on the same sum of money in a 6 to 7 year

period. In the long run, the timing is improbable to be perfect for anyone.

So, the returns are not likely to be the ones that the fund managers like to

display with the benefit of hindsight. SIP further averages this out & lowers

the return.

2) Diversified investments: What mutual funds do is that it diversifies your

investment, which saves you from the downside of concentrated investment

in a few lesser stocks or poor selection. However, what it also does is that it

prevents you from the supernormal profits that can be gained by a great

variety of stocks.

3) 3) Mutual Fund regulations: Even if you get perfect timing as said above,

you will not get super-rich like Warren Buffet since mutual funds are highly

regulated by govt. All this is for the safety of the investors since, by design,

the funds are for non-savvy market investors. They would settle for

moderate returns, but can’t take high risks at the cost of losing a substantial

part of their capital. The net result is that most funds have an extensive portfolio of Blue-chip stocks which indeed preserve your particular capital, but also

prevent you from getting super normal returns from hidden jewels or

beaten down but good potential stock.

4) So Mutual Funds would make you earn above the fixed deposits or LIC

plans. However, it won’t make you very rich, like direct investing in stocks

can. This is common sense as well since nobody became rich by letting

other people manage their money.

By taking on a certain level of risk, you can put your current asset or assets to

work for you and generate short-term or long-term income, depending on your

investment goal. It is for this reason that riskier securities, such as

stocks are considered the go-to investments for people looking to

strike it rich.

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