How to replace your salary by investing small amounts in Mutual Funds?

How to replace your salary by investing small amounts in Mutual FundsHow to replace your salary by investing small amounts in Mutual Funds?


Many investors keep putting their money in savings account or bank FD’s  which provides low returns. However if you are smart, you can invest in Systematic Investment Plan (SIP) in Mutual Funds that would help investors to save small money every month or quarter and provide good returns in the long run. What are features of SIP in Mutual Funds? How you can invest in smart ways in Mutual through SIP and get higher returns? Are there any specific tools which can help you to design a model portfolio based on your risk appetite and age?

Also Read: How to become Crorepati by invesing small amounts in Mutual Funds?

What is SIP in Mutual Funds?


If you are already familiar with SIP, you can skip this section.

Systematic investment plan (SIP) in mutual fund is where an investor invests equal monthly or quarterly savings in mutual fund schemes. There are over 10,000 mutual fund schemes in India where you can invest through SIP. If you can understand on how SIP works, you can get maximum benefits and get superior returns. Generally you can expect 12% to 15% annualized returns from mutual funds if you can invest through SIP.

What are the benefits of investing in Mutual Funds through SIP?


Mutual funds pool money from investors and invests in stocks based on the objectives defined by the scheme.

1) Invest small amount: SIP is where you can invest small amounts of Rs 500 per month in any of the mutual fund schemes. So you don’t need to have huge income to invest in SIP in mutual funds.

2) Invest periodically: Investment through SIP can be done as low as Rs 500 per month. You can just select the mutual fund scheme and start investing for a smaller tenure of 6 months to longer tenure of 20 years period. This would help you to make a disciplined approach of regular investments.

2) Averaging of investment: Many of you would have stayed away from stock markets as they are highly volatile. However when you invest through SIP every month, you would invest when markets are high and when markets are stable and when markets are low. This way your investment got averaged out and all fluctuations are taken care. This would help you get higher returns from mutual funds.

3) Compounding returns in long run:  When you invest in disciplined way of investment every month for long term, your money is compounded regularly and grows at faster pace. E.g. Mr.Ramesh invested Rs 500 per month for 10 years, the first year of investment is Rs 500×12 = Rs 6,000. However at the end of 1 year, it is not just Rs 6,000, but it could be higher say Rs 7,000 (based on mutual fund scheme performance) as your money already started generating returns. Now your Rs 7,000 would start generating returns from second year. This compounding of returns would help you to get higher returns.

4) Reach Financial Goals easily:  If you kept a financial goal, this can be easily achieved by investing in mutual funds through SIP. You might have goals like children education, daughter marriage, accumulating corpus for retirement. Whatever goals it could be, you can achieve it through SIP of mutual funds. You just need to plan it.

How to invest in Mutual Funds?

You need to first open an account with any Mutual Fund Broker to start investing in regular mutual funds. Second part is identifying 3-5 good mutual fund schemes for investment. Yes, you can start Rs 500 per month i.e. with 1 scheme. You can increase the SIP amount as well as no. of mutual fund schemes so that you are investing a good amount in 3-5 mutual fund schemes.

How to identify good mutual fund schemes based on risk appetite and tenure?


The key for success in mutual funds through SIP is identification of good mutual fund schemes.  There are several mutual fund brokers who keep recommending top mutual fund schemes. There are several tools available in the market too. Recently Edelweiss has launched a unique GPS feature which would help you in identifying a good fund based on risk appetite and age.

How does Edelweiss GPS feature work exactly?


There are two options available here in the mutual funds segment.

a) I have some money


You can visit the URL here for guided portfolios.

You can enter the amount which you would like to invest (One time or SIP). E.g. if you want to invest Rs 500 per month, you can indicate the same and select SIP option.

You can enter your age.

You can select your risk appetite (Low risk, medium risk and high risk). If you are willing to take high risk and expecting high returns, you can select high risk option. If you wish to take low risk and minimize any reduction in your capital, you can select low risk. If you are moderate risk taker, just select medium risk)

Tool would display list of Mutual fund schemes based on your risk appetite and age.

Tool would also display how such portfolio performed in the last 5 years.

Tool would also display how such portfolio can perform in future in the next 10 years.

The above is one of the tools which can help you in identifying a good mutual fund for SIP or for lumpsum investment. There could be several other tools in the market, but I felt this is simple to use for new investors.

b) I have a financial target


You can visit the URL here. https://www.edelweiss.in/gps

You can enter the target amount, no. of years, purpose and age

You can select your risk appetite (Low risk, medium risk and high risk). If you are willing to take high risk and expecting high returns, you can select high risk option. If you wish to take low risk and minimize any reduction in your capital, you can select low risk. If you are moderate risk taker, just select medium risk)

Tool would display list of Mutual fund schemes based on your risk appetite and age.

Tool would also display how such portfolio performed in the last 5 years.

Tool would not display how it would perform in future in next 10 years, because, you already selected the tenure and your target amount.

The above is one of the tools which can help you in identifying a good mutual fund for SIP or for lumpsum investment in mutual funds. There could be several other tools in the market, but I felt this is simple to use for new investors.

When Stock marketes are going down or taking corrections, if you can invest in good mutual funds, you would get benefitted as you would be buying mutual fund units at lower NAV.

Conclusion: In future you should replace your salary with returns from your investments. This is possible by investing small amounts through SIP in mutual funds. If you can invest in SIP mutual funds for long term of say 10-20 years, returns from such funds can easily replace your salary.

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Suresh

How to replace your salary by investing small amounts in Mutual Funds

2 comments

  • Babu

    Dear Suresh Ji,
     I'm ur regular reader. I'm an NRI.  I have started SIP in the following MFs. all are Direct funds. I split and invest 1.25L per month in these funds. I'm planing to invest for 8 to 10 years. and I have redeem it in 15 years. I want to settle when I come back to india.
    Please asses my selections.

    1. BSL Front line Equities : Large cap

    2. BSL Equities fund: Multicap

    3.HDFC Balanced: Balanced fund

    4. HDFC Mid cap opps: Mid cap

    5. Franklin india smaller companies fund: Small cap

    6. ICICI Banking and Financial fund: Sector fund

  • Narayanan

    Can I invest through edelweiss using my debit card? What are the procedures for opening an account with them?

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