How can you earn profit by investing in mutual funds?

Here are some ways which can make mutual fund investing profitable for you:
How can you earn profit by investing in mutual funds?
How can you earn profit by investing in mutual funds?
i. Invest in MFs based on your goals: Always link your investments to your financial goals. For long term goals like child’s marriage or education, one could invest in equity funds which are deemed to give the highest returns in the long run. We all know that with our current and potential future income will not be enough to fulfil all our goals. Therefore, an accumulation of investments over a long period of time through SIP route powered with compounding could generate the desired results.
ii. Opting for a long tenure: Opt for a longer tenure especially in equity mutual funds and ELSS in order to tap into the compounding benefits. That is when you stand a chance to get reasonable returns. The historical performance over various periods of time suggests that the markets have a much lower chance of loss if you hold on for a long period, say over 8-10 years. Moreover, by increasing the tenure of the SIP, you can also lower your monthly SIP instalments.
iii. Keep impulses in control: One of the biggest and most common mistakes mutual fund investors make is to discontinue their investments when the market is down. Some investors have a tendency to start a SIP and then stop it when the markets are not doing well. Stock markets inherently tend to be volatile and cyclical. Stopping your SIPs during a downtrend in markets is probably one of the worst financial decisions you can take. It totally undermines the purpose of SIPs. When you invest in a disciplined manner through SIPs, you tend to get more units when the market is low and fewer units when the market is high, thus averaging the cost of mutual fund units.
iv. Be regular and disciplined: Investing in mutual funds has to be initiated in a disciplined manner. Investing small amounts and increasing the instalments gradually is a good way to grow your portfolio.
v. Keep an eye on the expenses: Be aware of the charges involved when investing in a mutual fund. This is known by the TER or Total Expense Ratio of the scheme published in the factsheet and on respective websites of the fund houses. The TER includes management fees, trustee fees, audit fees, brokerage and transaction costs, commissions to agents and distributors, and taxes. It goes without saying that lower the expenses, the better your returns.
vi. Choose growth over dividend mutual funds: The growth option indicates that the dividend declared by the mutual fund is reinvested into the units of the mutual fund and is only paid out to those who opted for the dividend option. Growth funds pass on the benefits of dividends and bonus issues indirectly to their investors. Any income (due to dividend) or valuation increase (due to bonus) results in an increase in the fund's NAV (net asset value). Since the dividend amount is reinvested, growth funds generate higher returns compared to dividend funds due to the power of compounding.
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