We all know that billionaires, whether Warren Buffett or Bill Gates, have more money than we can imagine. Here’s an interesting question for you though. What do you think is their “ Wealth “ made up of ?
Is it in their bank balance? Do they have multi- crore F,Ds.? Is it the value of their real- estate holdings, or something like that ?
The Not-so -Secret Truth.
The truth though is that they are rich because they own companies and the companies they own are very valuable. The top Five rich people in 2017, from Bill Gates to Mark Zuckerberg, each one has a net- worth more than $50 billions, and each ons a significant share in certain companies.
Their source of wealth is not “Cash” or buildings or private jets. Nor is it their “Jobs”. It’s the companies they helped establish and /or are part owners of. You might notice that this is also true of the “Rich” people around in general- more often than not they happen to be business owners.
The rich own not just their own companies, but(like Warren Buffett) may just be part owners of other companies. The top 10 list of richest people doesn’t include any movie stars or sports stars or real estate moghuls.
So Why Is It That World’s Richest People Own Companies ?
Companies are generators of Goods, services and most importantly talented people- people like you and me who are key creators of wealth in companies. Their smart ideas lead to the next generation of goods and services.
The result is that a successful company creates what is called “economic value”. Essentially , their output is more valuable than the sum of all the inputs go into making their product or services. A Domino’s pizza is more valuable to the person ordering than the sum of the flour, tomatoes, building rent and salaries etc. that go into making it. .
That Is Wealth Creation
Guess Who Reaps The Maximum Benefit?
The shareholder does, in the form of an increase in the value of their shares and regular dividends. Since the promoter of the company or the majority shareholder owns most shares in such a “Great” firm, they receive most of the payouts.
But it’s not just the founders who benefit. Most often there are other investors in these companies- VCs for private companies and individuals like you and me for listed companies. And they benefit Too.
Why Should You Know All This ?
Because same solutions to becoming Rich are available to you too. You don’t have necessarily have to establish your own company even.
The easier option is to part owner of other companies by buying their shares. But, how do you know, among the thousands of companies, which one will be successful?
That’s where equity Mutual funds come in. Let professionals decide which companies are the most likely to create wealth. You simply invest in them to become wealthy. You might not make it to the top 10 richest people list, But at least you will have enough wealth to enjoy life- or to start your own company.
What Is A Mutual Fund?
A Mutual Fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, and they provide liquidity. But investors in a mutual fund pay various fees and expenses, known as total expense ratio, to manage the funds like professional charges to fund managers.
Mutual Funds are classified by their principal investments as money market funds, bonds or fixed income funds, stocks or equity funds, hybrid funds or others. Index Funds, a category of Mutual funds are passively managed funds that match the performance of an Index, or actively managed funds.
Mutual Funds Vs Stocks : Which Is Better?
In Mutual Funds, for a small fee, the investor gains the stock-picking ability of the professional fund manager, does not have to track his portfolio and also benefits from tax-exemption of the portfolio gains.
The main reasons why the fund route is better, is as follows :-
1 No Need To Pick And Track Stocks : –
When you invest in a mutual fund, you get the benefit of a fund manager’s expertise- picking stocks, tracking them, making sector and asset allocation, booking profits, when required- everything is done by a professional fund manager. A professional fund manager ensures that the portfolio holds good stocks with potential long- term returns.
2 Lower Cost Of Investing : –
Fund houses negotiate with intermediaries and, therefore, have lower costs. If you buy and sell shares, you will probably pay 0.5- 1% as brokerage. You also have to pay demat charges.
However, due to their scale, mutual funds pay only a fraction of the brokerage charged to the individual investors. This benefit gets indirectly passed to you as a Mutual Fund investor. You also don’t need a demat account.
3 Instant Diversification : – A well diversified portfolio should have about 25- 30 stocks. But, such a portfolio can be created only with a large corpus. An individual might not have sufficient funds for a large diversified portfolio. Mutual funds provide instant diversification. Since you buy units of the fund that invests across several stocks, you receive diversification benefit without investing a huge corpus.
4 Low Cost Of Entry : – Most mutual funds have low minimum- investment requirements, especially for retirement account investors. Even if have a lot of money to invest, consider funds for the low-cost, high quality money- management services they provide.
5 Flexibility In Risk Level : – Among the different funds, you can choose a level of Risk that you’re comfortable with and that meets your personal and financial goals, like aggressive, moderate or conservative. If you want to be sure that your invested principal doesn’t drop in value, you can select a money-market fund.
CONCLUSION : –
You are the master of your destiny. But you must have a Desire to achieve your goal/s; Faith and Strong Belief in you that you can achieve it; Imagination- to rearrange existing ideas into new concepts and Specialized Knowledge and Skills in order to add value and be paid for it. Most of us, at this advanced age of 50- 55 years may be lacking the specialized knowledge of various investment vehicles available and in such a case, the professional knowledge and experience of Financial advisors can be of great help which is available in mutual funds investments. Transforming Desire into money requires specific plans, for which we have to have always deep Desire and Confidence.