Last Updated on September 9, 2022 at 8:48 am
“Has anyone ever gotten rich using mutual funds?”. You may have seen this question do the rounds on social media and personal financial forums from time to time. This is asked by two sets of people.
(1) Those who wish to push other products: Insurance, stock advisory services or a PMS and (2) young investors unsure about the capital markets. The former group has an agenda and can safely be ignored. We will focus on the latter group here.
To offer a superficial answer, I know plenty* of people who have gotten rich using mutual funds. I am one of them: Fourteen Years of Mutual Fund Investing: My Journey and lessons learned. *I stopped to count: the number of readers who have changed their social station predominantly due to mutual funds over the years is at least 17, excluding me. If a loner like me can count 17, I am sure there are thousands more.
That is not the point, though. We have been brainwashed by the financial services industry with tales of compounding and huge returns. We believe we can change our lives if there is a guaranteed way of getting such huge returns. That is why we are looking for “solved example problems.”
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥 🔥
In my talks, I often ask the audience this question. Two co-workers started investing the same day. One chose only fixed deposits and the other only mutual funds. The FD guy got 7% returns after 25 years, while the MF guy got 13% returns. Who made more money?
Most people in the audience assume it is the MF guy until someone realises that the amount invested by the co-workers is not known. A 7% portfolio can result in greater wealth than a 12% portfolio if the amount invested in MFs is less.
The point is that returns are important but not as important as the amount we keep investing and the time we allow it to grow. We need money to make money.
The instrument is only secondary. Anyone who systematically invests and anyone who systematically increases their investment each year will end up with a sizeable chunk of wealth no matter where they put it – MFs, FDs etc.
We cannot buy anything with “huge returns”. We cannot beat inflation with “huge returns” – unless we invest enough. See: Equity may beat inflation, but that doesn’t mean you will! And,Why you need time, money and returns to beat inflation.
So anyone looking to create “wealth” should aim for two things: (1) Time – start immediately (don’t waste time thinking about lost time!) and (2) Increase your income but do not proportionately increase your expenses! Invest as much as possible and increase this investment each year as much as possible.
Yes, you need a good chunk of equity for long term goals. This equity can be in any place you are comfortable with: stocks, MFs, ETFs, stock baskets, PMS, whatever. The point is that it is not the instrument that will make you rich. Only your understanding of it and how much you invest in it consistently will.
Take my equity mutual fund portfolio for retirement, for instance. For the first five years from June 2008, returns were zero. Then it shot up. In March 2020, it fell to 2.75% – My retirement equity MF portfolio return is 2.75% after 12 years! Not much happened to my financial independence status, though.
If this happens after 12 years, it can happen at any time. So one of my biggest lessons is: Do not expect returns from mutual fund SIPs! (Do this instead!)
The rate at which our investments grow keeps changing. We have no control over it. We have better control over the rate at which our investing grows. The primary reason I was able to achieve financial independence is that I was able to increase my investments much more than the return I got from them. I was lucky that my investing rate was also significantly more stable than portfolio returns. See:Why increasing investments each year is crucial for financial freedom.
Therefore I urge young earners not to search for that magic instrument or magic return that will change their life. Have a long-term vision of your lives: In 20-30 years, I will be a multi-crorepati. I will not waste my time chasing shortcuts. I will increase my income and invest as much as possible without expecting immediate results. Choose a balanced portfolio of 50-60% equity (ideally index funds) and 50-40% fixed income (EPF/PPF/NPS/Debt funds etc.).
In this portfolio, they should start investing as much as possible immediately and increase investments each year as much as possible. They should invest without worrying about market conditions. Once this is set in motion, they should learn portfolio risk management (rebalancing, de-risking) as per their need and implement it as required. That is it. If this is done for a decade, we will see the change. If this is done for two decades, we can cement the change.
Do share this article with your friends using the buttons below.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool!=> Track your mutual funds and stock investments with this Google Sheet!
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth!
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter with the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Most investor problems can be traced to a lack of informed decision-making. Wehave all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about?As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision-making and money management is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want 
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)
