How to become rich? BEWARE, do not get this list wrong, it is what holds key to your MILLIONAIRE dreams

How to become rich? You can become a millionaire if you have an outperformance bucket in your list to outperform others.

Your mutual fund investment can open the gates that can lead you to a world that is full of wealth. Photo: Reuters

How to become rich? You have to ensure that you get most things right when you invest your hard-earned money to become a millionaire and more. For that, you must not make certain mistakes and we, therefore, provide certain tips to send you on your way. Well, it is no secret that most people must invest in mutual funds to really power up their dreams to become rich, And it is your mutual fund investment that can open the gates that can lead you to a world that is full of wealth. However, that will happen provided you keep an eye on the market and the available investment tools that can outperform equity markets to maximise your investments. To know this trick, one needs to develop an outperformance bucket list in one's portfolio that can give higher returns in the long-term perspective. In short, do not make the mistake of botching up this part of your investment.

Speaking on what does it mean when it comes to mutual funds outperformance bucket, Arun Kumar, Head of Research at FundsIndia said, "This is the portion where you try to add on higher returns over and above the core bucket returns. Long/active duration (higher duration to capture decline in interest rates and vice versa) and credit risk funds (higher yields via lower-rated papers). For conservative investors, who have moved from FDs, the fixed income allocation should be predominantly in the core bucket. For the core bucket its preferable to stick to 100% AAA funds in the low duration/ short term / medium term / corporate bond / Banking PSU categories."

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Kumar went on to add that for investors looking at enhancing overall returns, if they have a higher risk appetite, they can have a portion of the overall fixed income allocation to the “Outperformance Bucket”. Given the 3 year taxation for debt funds, it becomes difficult to play duration strategy as the entry and exit timing is critical and the 3-year taxation impacts the exit timing flexibility. Dynamic Bond Funds (where the duration adjustment is managed by the fund manager within the fund) can be considered to participate in the duration strategy if you want to take advantage of interest rate movements.

Speaking on the kind of mutual fund plans that can be clubbed into the outperformance bucket of an investor Kartik Jhaveri, Manager — Wealth Management at Transcend Consultants said, "Outperformance bucket of a mutual fund investor is considered those investments that involve high-risk appetite. ELSS mutual funds, equity mutual funds, small-cap mutual funds are such mutual funds that can be considered for investment by an investor if he or she is looking for his or her outperformance bucket."

Overall the “Outperformance” bucket comes with higher risk and the potential of higher returns. It is important to remember that, this bucket can lead to both positive as well as negative outcomes. Hence this bucket should be considered as a portion of overall fixed income allocation, only for investors with much higher risk appetite.

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