MAKING WEALTH THROUGH MUTUAL FUND ROUTE

HOW TO CREATE WEALTH USING MUTUAL FUND ROUTE

For those of you or your close friends, who may not want to take risk, there is another avenue for slow and steady creation of wealth. You also can resort to the technique suggested below, to create a parallel pension fund for your self or for your children’s education etc. in future.

I have short-listed various equity based mutual funds and I have zeroed in on SBI Magnum Contra Fund. Assuming you have at least 10 years to retire, I suggest all of you to invest in SBI Magnum Contra Fund – Dividend reinvestment option for a period of 7 years. Then stop investing and wait for the remaining period till retirement, say 3-4 years. In the following paragraphs, you will see how your wealth would grow.

Magnum contra is now available at the rate of 36 or so. Invest a sum of Rs.3000.00 p.m. on Systematic Investment Plan – Dividend Reinvestment Option. When the fund declares dividend, the NAV falls down and the dividend amount entitles you to units at ex-NAV prices. Going by the past trend, the NAV is assumed to grow at a conservative level of 10 - 15 percent per annum.

(The table is not coming out very well in the blog. The columns for the table are

i) Year

ii) Amount invested

iii) No. of units allotted

iv) Dividend units

v) Total units

(Readers may view the figures accordingly)

Year Amount No. of Dividend Total
Invested units Units Units

allotted allotted

(approx)
----- -------- ---------- ---------- ------

I 36000.00 1000 -- --
II 36000.00 947 152 2099
III 36000.00 878 260 3237
IV 36000.00 800 400 4437
V 36000.00 765 605 5807
VI 36000.00 692 741 7240
VII 36000.00 620 851 8711
VIII --- -- 911 9622
IX --- -- 1015 10637
X --- -- 1100 11737

So, in a nut shell, you have invested 2,52,000.00 over a period of 7 years and have forgotten it for three more years (total 10 years). At the end of the 10th year you are having approx. 12000 units (give or take a few) and the NAV as per our conservative estimates should be ruling at around 70 at that time. So your corpus would have grown to Rs.8,40,000.00 approx.

At this time, you may give an option to the Mutual Fund to convert your investments into Dividend Payout Option. Assuming the company declares Rs.8.00 per unit as dividend, you will end up in getting about Rs.96000.00 per annum as dividend which will be around Rs.8,000.00 per month on a regular basis. As and when the NAV grows, there will be more dividend and your corpus will also grow.

If you have initial investible surplus of more than 3000.00 per month, say 4000.00 or 5000.00, you may work out the above figures accordingly.

There are few frequently asked questions.

a) If the NAV during investing time is consistently low, Answer, you will be allotted much more units.
b) If the NAV during investing is high, Answer you will be given more dividend and more units.
c) In either of the above cases, the resultant number of units would be more or less the same as projected above.
d) Why Magnum Contra? This fund takes a contrarian view of the market and invests in sectors that are not very much in favour but have a potential to bounce back. Among the various Contra funds, Magnum Contra is the best performing one.

The above method is a sure shot method of wealth creation. In case of privately employed persons, who are wanting to save tax by investing in tax saving instruments, they may apply the above principle and invest in SBI Magnum Taxgain scheme in the same method shown above. Magnum Taxgain gives more dividend but there is no dividend reinvestment option. The dividend is paid out and in the hands of the investor, it works out in the same principle.

Other funds which people may consider for slow and steady creation of wealth are SBI Magnum Multicap Fund, SBI Magnum Global Fund, Franklin India Flexi Cap Fund.