Wealth Creation Through Mutual Funds: A Strategic Approach

At the core of mutual funds lies the principle of diversification. With shares of over 4,000 listed companies and thousands of bonds and other securities available for trade, making choices can be challenging for investors. However, by pooling money from various investors, mutual funds construct portfolios that span a broad spectrum of stocks, bonds, and other securities. This diversification serves as a risk mitigation strategy. For instance, in challenging market years like 2008 (Nifty down 52 per cent), 2011 (down 25 per cent) and 2015 (down 4 per cent), a majority of actively managed equity funds fell less than the market. Funds provide exposure to different industries and asset classes, fostering stability within portfolios. 

Expertise Counts - A distinctive feature of mutual funds is the involvement of professional fund managers. With fund managers and chief investment officers having decades of experience in dealing with markets, they are well-equipped to make investment decisions on an investor’s behalf. The active management of mutual funds is designed to optimise returns and adapt to changing market conditions, offering investors a level of expertise that may be challenging to replicate with individual stock-picking. Moreover, mutual funds do not charge anything more than 2.5 per cent (total expense ratio) per annum for managing funds, and there are no performancelinked fees, meaning alpha flows directly into investors’ pockets. 

Democratising Investments - According to an S&P study, about one-fourth of Indians are financially literate. Furthermore, according to a 2019 survey by the Reserve Bank of India (RBI), a mere 8 per cent of Indian households held financial assets. Mutual funds provide a gateway to the financial markets for investors with varying levels of experience. Unlike some traditional investment avenues, mutual funds are accessible to a wide range of individuals, thanks to minimum investments of ₹100 to ₹500. Moreover, they offer liquidity, thus allowing investors to buy or sell fund units at their convenience and without any middlemen! 

Using the SIP Route - A powerful strategy within the realm of mutual fund investing is the systematic investment plan (SIP). This approach involves regularly investing a fixed amount at scheduled intervals, such as monthly or quarterly. SIPs instil discipline in investors, encourage consistent contributions, and harness the benefits of rupee cost averaging. This systematic approach helps smoothen out the impact of market volatility and positions investors for long-term wealth creation. Mutual fund SIP accounts stood at 7.30 crore, and the total amount collected through SIP during just one month i.e. October 2023 was ₹16,928 crore. This shows the extent of belief in SIPs. 

Mapping Your Risk - Understanding personal risk tolerance is paramount in the mutual fund investment journey. Different funds come with varying levels of risk, and aligning investment choices with individual risk preferences ensures a comfortable and sustainable approach. By evaluating risk tolerance, investors can select funds that align with their financial goals. With SEBI mandating the depiction of risk using ‘riskometer’ in any specific scheme, investors can easily understand and map their investments to levels such as low, low to moderate, moderate, moderately high, high, and very high. 

In conclusion, wealth creation through mutual funds is a strategic and accessible path for investors seeking long-term financial growth. Diversification, professional management, accessibility, and disciplined strategies like SIP contribute to the effectiveness of mutual funds in building wealth. 


SAMIR VORA
Founder & Ceo, Ocean Finvest

The writer is Founder and CEO, Ocean Finvest
■ EMAIL ID : research@oceanfinvest.in ■ WEBSITE : oceanfinvest.in