How to earn efficiently through Mutual Funds?

Earning consistently from Mutual Funds is an ambitious goal but it is definitely achievable with the right approach. By implementing a strategy, being patient and staying disciplined, you can work towards building wealth.

This blog aims to walk you through the steps needed to reach the milestone by learning how to earn regular income every month. We will discuss concepts, investment tactics and tips for optimising your investment returns.

Understanding Mutual Funds

Mutual Funds gather money from investors to invest in various securities such as stocks, bonds and other assets. Skilled Fund Managers manage these funds with investment goals in mind. The returns on funds can fluctuate depending on the fund type and market conditions.

Calculating the required corpus

Before investing into Mutual Funds, it is important to set goals. Generating a substantial income through Mutual Funds requires consistent investment and a long-term outlook.

For example, here we will calculate how to earn ₹10 lakh per month.

If we assume a return of 12% p.a., from Mutual Funds, we can apply this simple formula,

Monthly Income= (Corpus × Annual Return​)/12

Rearranging the formula to find the corpus:

Corpus= (Monthly Income×12​)/Annual Return

Therefore, you would need an amount of ₹10 crore to generate an income of ₹10 lakh at a 12% annual return rate.

Strategies for investing

Here are some strategies for how to generate regular income:

•  Diversify your portfolio

A balanced investment portfolio can consist of a combination of Mutual Funds. You could divide your investments into equity, liquid, index, debt or hybrid funds. This diversification minimises the risk and reduces your dependence on one particular investment or asset class.

• Select the right funds

When it comes to choosing the funds it is important to select the ones with a consistent track record of performance, low fees and experienced managers. Research various platforms which offer the correct ratings and analysis on Mutual Funds.

•  Balance your portfolio

Regularly reassessing and adjusting your portfolio is essential to ensure it aligns with your investment objectives and risk tolerance. Rebalancing involves selling off some investments while acquiring others to maintain your asset mix. For example, if the value of your equity fund holdings has increased making up 70% of your portfolio, you might consider selling some of these holdings and investing more in bonds to retain the allocation.

•  Consider long-term investment

Patience is crucial in fund investing for long-term success. Market ups and downs are usual occurrences; thus, sticking with your investments during market downturns is vital for capitalising on long-term growth opportunities. Although short-term market volatility may occur at times, historical data shows that overall, there have been positive returns in the long run.

Tax Impacts of Mutual Funds

Understanding the tax implications of investing in funds is important to maximise your returns.

1. Equity Funds

If you hold equity funds for more than a year, you would be subject to 12.5% tax (on gains above ₹ 1.25 lakh and 20% if held for less than 1 year.

2. Debt Funds

Debt funds are taxed according to investor’s slab rates.

3. Tax Saving Funds

Equity-linked Savings Schemes (ELSS) provide tax benefits under Section 80C of the Income Tax Act. Investments in ELSS can qualify for a deduction of up to ₹1.5 lakh. They come with a lock-in period of three years.

Conclusion

With the appropriate strategies, consistent investment habits and a forward-looking mindset, achieving a regular income through Mutual Funds is within your reach. Kick-start your journey early, spread out your investments, select the funds and hold on to them to leverage the benefits of compounding. Keep in mind the tax considerations. Seek guidance as necessary. You can attain your aspirations and embrace a prosperous future with perseverance and dedication.

By adhering to the strategies mentioned in this blog, you can strive towards securing earnings and financial autonomy.