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Stop Envying Your Rich Friend & Start Getting Richer

So your friend's recently struck gold. You notice the swanky new pad, flashy new car, well-heeled attire and the works. You know you should feel happy for him that he's risen through the ranks, but somehow you feel a tinge of envy. So, then how do you resolve this predicament? A way to transform this niggling envy is to make it work for you. And how do you do that? Use it as a fuel for learning more on the right kind of investments. Don't let differing levels of income come in the way of your friendship.

Make it ring, ka-ching

If you are looking to become a millionaire, you need to start investing as early as you can. A little discipline and a bit of risk-taking can go a long way in building wealth. Capitalise on compound interest. It is the thrust behind investments that directs any interest received, accumulates interest on itself. Hence, money invested at the current stage can wind up being more than a good deal of money invested later. In a nutshell: If you are looking to become a millionaire, the sooner you start investing, the faster is your route to riches.

 

Let’s look at some proven methods of investment.

 

Wealth generation

Tweaking the way you invest your monthly salary can help in gaining wealth. Perhaps you have been looking at a bank fixed deposit (FD). Although it is a traditionally safe mode of investing, it cannot bring untold riches since the interest earned on an FD can hardly beat inflation in the long run. Instead, look at investing in mutual funds.

 

What is a mutual fund?

A mutual fund is just like a deposit where you need to save a certain amount every month. The amount is invested in equity shares or debt instruments like a bond issued by a company or government.

 

You don’t need to research on stocks and bonds. The mutual fund company appoints a fund manager who does all your hard work. For a small fund fee, the fund manager keeps a track of your investments and takes action as and when required. Have a look at different mutual funds and choose the one that suits your life goals.

 

Some of the different types of mutual funds are:

  • Equity mutual fund
  • Debt mutual fund
  • Balanced mutual fund

An equity mutual fund is where your money is invested in equity shares. This fund can beat inflation using the power of compounding. It can also help you create a big corpus over a period of time. Although this sounds exciting, there is a certain amount of risk associated with an equity mutual fund. These funds hold a risk factor as their performance depends on the performance of the stock market. When the stock market goes on a decline, some equity funds may not perform well.

In a debt mutual fund, the fund manager will invest your money in debt instruments like treasury bills, government securities and corporate bonds.  These funds are ideal when you are seeking consistent income. In a balanced fund, your money gets invested partly in debt instruments and partly in equities. In this manner, your wealth multiplies slowly.

 

 

How to invest in mutual funds

 

 

 

 

You can invest in a mutual fund by contributing a lump sum amount or starting a systematic investment plan (SIP).

 

An SIP allows you to invest a fixed amount at regular intervals in a mutual fund scheme. It allows you to invest as little as Rs 500 every month.

 

 

Secondary income

Now that you have invested for your life goals, look at a secondary income, for instance, retirement. A dividend option in a mutual fund scheme is an ideal option. Here, the mutual fund company shares its profits to unit holders in a dividend option. The dividend is deducted from the https://www.youtube.com/watch?v=4QVJ0CE9ROoNAV of the mutual fund unit. For example, if the NAV of your mutual fund unit is Rs. 25 and the company declares a dividend of Rs, 5, then, the NAV of your mutual fund unit becomes Rs. 20.

 

Remember taxes                                                                                      

, A new tax will come into effect on 1 April 2018, on mutual funds known as  Long-tTerm Capital Gains Tax (LTCG) as stated in the 2018 budget. A LTCG tax rate of 10% will be applied on a profit above Rs. 1 lakh made on selling equity mutual fund units.

 

Dividends from equity mutual funds will also be subject to tax. A dividend distribution tax rate of 11.65% including cess and surcharge will be applied on the dividends declared by a mutual fund company.  

 

Similarly, debt mutual funds are subject to tax too. A profit made on selling a debt mutual fund unit after 36 months of investment will be subject to a tax rate of 20% after indexation. While, the profit made on debt fund units sold within a year of purchase is added to your income, the tax rate will be applied as per your income tax slab.

 

To sum up

You can achieve your goals and make your dreams come true. Invest your hard earned money systematically in the right mutual fund scheme to make your money work for you.  Once your goals are fulfilled, continue to invest in a mutual fund to use it as an alternate source of income.

 

 

 

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