Ritesh Sabharwal CFP®

W.M.W #27: (Part 1/5): 91% Indians Miss Wealth Creation - Mutual Funds Explained

Reading time: 5 minutes - December 20, 2025

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Hey Reader

Last week, my 24-year-old nephew Neha asked me something I hear all the time:
​Neha: "Everyone says 'invest in mutual funds.' But I don't even understand what a mutual fund is. How does it work?"
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Here's what I told her - and what every Indian should know about mutual funds.

The Problem: 91+% of Indians Miss Out on Wealth Creation

Only 8.9% of Indians invest in equities. 91.1% miss out on wealth creation. Why?
I've asked hundreds of people. Here are the top 3 answers:

1. "Mutual funds are too complicated" (68% of responses)
2. "I don't understand how they work" (54% of responses)
3. "Stock market is risky - I'll lose my money" (81% of responses)

Here's the truth: Mutual funds aren't complicated. They're just poorly explained. Let me fix that in the next 5 minutes.

What is a Mutual Fund? (The Simplest Explanation)

Forget jargon. Here's the real explanation:
​Mutual Fund = Pool money + Professional manager invests + Share profits

That's it. Think of it like this:

Your money: ₹5,000
​999 other people's money: ₹5,000 each
​Total pool: ₹5,000 × 1,000 = ₹50 lakhs

Now, instead of you trying to pick stocks (and probably failing), a professional fund manager takes that ₹50 lakhs and invests it in:

• 50-100 different companies
• Across multiple sectors
• Based on years of research

When those companies grow, your ₹5,000 grows proportionally.
​Example:

If the fund makes 12% returns:

• Total pool: ₹50L grows to ₹56L
• Your ₹5K grows to ₹5,600
• You made ₹600 (12% return)

That's a mutual fund.

How Mutual Funds Actually Work (Step-by-Step)

Let me break down exactly what happens when you invest ₹10,000 in a mutual fund.

Step 1: You Invest ₹10,000: You choose a mutual fund (say, MF scheme X) and invest ₹10,000.
​Step 2: You Get "Units": The mutual fund has a price called NAV (Net Asset Value)—think of it like the price of one "share" of the fund. Example:

• NAV of MF scheme X: ₹500
• Your investment: ₹10,000
• Units you get: ₹10,000 ÷ ₹500 = 20 units

Step 3: Fund Manager Invests Your Money: Your ₹10,000 (along with crores from other investors) goes to the fund manager. The fund manager buys:

• Stock 1: ₹1,000
• Stock 2: ₹800
• Stock 3: ₹700
• Stock 4: ₹600
• And 50+ other companies: ₹6,900

Your ₹10,000 is now spread across 50+ companies. You couldn't have done this yourself (buying shares of 50 companies would cost lakhs).

Step 4: Companies Grow, Your Units Grow: Over the next year:

• Stock 1 grows 15%
• Stock 2 grows 10%
• Stock 3 grows 12%
• Some companies fall, but overall the fund grows

The fund's NAV increases from ₹500 to ₹560 (12% growth).

Step 5: You Make Money : Your investment -

• You bought 20 units at ₹500 each = ₹10,000
• Now each unit is worth ₹560
• Your 20 units = 20 × ₹560 = ₹11,200

Your profit: ₹11,200 - ₹10,000 = ₹1,200 (12% return)
​And you didn't have to:

• Pick stocks
• Monitor markets daily
• Worry about individual companies failing
  The fund manager did all of that.

The Magic of SIP: Invest 20% Salary to earn Crores

Now here's where it gets interesting.
Most people think: "I need lakhs to invest in mutual funds."
​Wrong.

You can start with ₹100-₹500/month.
But let me show you the power of SIPs with just 20% salary investment @12% returns over 30 years

• 20k/month salary: 4k investment (20%) → ₹1.2Cr
• 30k/month salary: 6k investment (20%) → ₹1.8Cr
• 50k/month salary: 10k investment (20%) → ₹3.1Cr
• 100k/month salary: 20k investment (20%) → ₹6.2Cr

What 20 Years of Staying Invested Can Do

Most people underestimate mutual funds because they look at 1-2 year returns.
But mutual funds are not short-term products - they reward time and patience.

Here’s what history shows - Over the last 20 years, several Indian equity mutual fund schemes have delivered double-digit CAGR returns, multiplying investor wealth many times over.

Most Important Caveat (Most Investors Miss This) - Compounding works only when you stay invested long enough and this is where most Indian investors go wrong.

The Bottom Line: Why Everyone Should Invest in Mutual Funds

Let me summarize everything in one simple truth:

Mutual funds turn time into wealth. The real returns in mutual funds come after year 10, not year 2.

• You don't need to be rich.
• You don't need to understand stock markets.
• You don't need to monitor investments daily.

Why MFs work better:
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✓ Start with ₹100-500
✓ Professional management
✓ Instant diversification with various types of MFs
✓ High liquidity
✓ Transparent returns
✓ Discipline to continue for 10+ years
✓ Patience to not panic during crashes

Do this, and in 20-30 years, you'll have crores. Not because you got lucky. Because you started early and stayed consistent.

Do let me know which Mutual fund topic are you most curious about?

Connect with me on LinkedIn, I write every day to help you make smarter money decisions👇

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