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How to Make Money with a Mutual Fund?

Updated On Jul 19, 2021

A mutual fund is a professionally managed portfolio of stocks and/or bonds. As a firm, a mutual fund scheme provider brings together a large number of participants who pool their funds to invest in a mutual fund portfolio. Each investor owns a portion of the mutual fund in which he/she has put money. The performance of a mutual fund determines its profit or loss. So, if you are interested in investing in mutual funds, continue reading as the following article explains how to make money with a mutual fund.

How to Make Money with a Mutual Fund?

An investor can profit from a mutual fund in three ways.

  • Dividends from Stocks and Bond Interest Gains - Dividends on stock shares and interest on bonds in a mutual fund's portfolio generate income. A mutual fund distributes nearly all of its annual income to its investors in the form of a dividend. Investors can choose to collect the dividend or reinvest the earnings to purchase additional shares.
  • Gain on the Sale of Securities - A capital profit is made when a mutual fund sells securities that have gained in value. These gains are also distributed to investors by the mutual fund.
  • Increased Value of Mutual Funds - When the value of mutual fund holdings rises but the fund manager does not sell them, the value of the fund's shares rises as well. In the market, the investor could sell their mutual fund shares for a profit.

Moreover, you must have certain questions in your mind before investing in a mutual fund. So, Let’s answer some of the most common questions you might have related to mutual funds.

Are Mutual Funds Profitable?

Mutual funds can have a direct (in terms of how much they improve in value) and indirect (in terms of how much you might save) impact on your savings. Moreover, mutual funds help in the professional management of the money, irrespective of the amount value, whether it is a large or a small investment.

How Can Investing in Mutual Funds Lead to Monthly Income?

It is advisable to choose a monthly income plan, or MIP, which is a type of mutual fund that produces a consistent monthly income through dividend and interest cash flows. 

Is It Wise to Put All Money in Mutual Funds?

Generally, financial experts advise against putting your entire money in mutual funds as they are subject to market risks. However, if you still wish to invest all your money in mutual funds, you can diversify your holdings by investing in a mix of low-risk and high-risk funds.

Take Away

Investing in an intelligent strategy that not only yields a return but also ensures one's survival. Money put in now will result in a better future. Thus, one should plan an investment based on risk tolerance and one's requirements and needs. Expert management, a hassle-free approach, cost-efficiency and tax efficiency are all advantages of mutual funds, making them a better investment scheme. However, it is advisable to carefully calculate the returns on your investment before investing in mutual funds. You can even consult a mutual fund advisor to make a more informed decision. 

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