Today, almost everything is digital, be it studies or any transaction, so why should your methods of building wealth be obsolete? Mutual funds have proven to be a typical way of saving and creating wealth in the long run. If you, too, want to accumulate a corpus but are unsure about how to start, fret not; we have got your back. In this article, we will cover all the points about how to benefit from mutual funds in the long run.
What is a Mutual Fund
Mutual funds are indeed a powerful tool for smartly building wealth. They pool money from various investors and invest it in different equity, bonds, or securities with the objective of wealth advancement. They offer a way for you to invest in a variety of assets without directly managing them, as a certified fund manager handles your investments on your behalf, aiming to attain profitable returns.
Find The Perfect Fit for You
Not everyone has the same financial goals as you. Some might need money to buy a car, plan for their wedding, or, let’s say, plan their retirement. Different types of mutual funds offer distinct objectives. We have tabulated a few for you.
Equity Funds
Equity funds primarily invest in stocks or shares of companies. They come in various forms, including index funds, which aim to replicate the performance of a specific market index, and actively managed funds, wherein fund managers make investment decisions based on research and analysis. Equity funds are suitable for those seeking exposure to the stock market while spreading risk, as fund managers diversify funds across various stocks to control the risk associated with a particular investment.
Debt Funds
If you are not willing to take risks, then debt funds are for you. These funds primarily invest your money into corporate or government bonds to save you from losses and offer you a fixed interest rate on the maturity date. Debt funds are typically lower-risk than equity funds, making them a popular choice for those seeking a more stable and predictable source of money with the potential for modest capital appreciation.
Hybrid Funds
It is always better to have the best of both worlds: equity and debt. Hybrid funds are financial instruments that combine stocks and bonds within a single fund. They offer diversification, allowing investors to benefit from the potential for growth in equities while maintaining stability through fixed-income securities. Moreover, they can have different allocations between stocks and bonds, catering to various risk profiles.
Flexible Mode of Investment
You do not need an immense amount of money to begin your mutual fund investment journey. You can start with just Rs. 500 via SIPs. In an SIP, you invest a specified amount of money at regular intervals, typically monthly. However, if you have a corpus and are looking to invest it to advance your capital, you can select a scheme that suits your financial objectives with the help of a financial advisor and invest via lump sum mode. Consequently, mutual funds offer a flexible investment mode to help you with capital appreciation.
Periodically Review Your Portfolio
Your portfolio is a collection of various bonds, stocks, and other assets. Amidst the rising and falling market, your mutual fund portfolio might drift away from the specified financial objective due to mixed returns from the different asset classes. A periodic review of your portfolio assists you in deciding whether it needs rebalancing or not. Rebalancing the portfolio involves selling the bad investments or switching between the funds to ensure that the portfolio is in alignment with financial goals.
Many firms provide the facility of a periodic portfolio review. For instance, BFC Capital reviews your portfolio twice a year and assures that no poor investments are clouding your portfolio.
Focus on Time, Not Timing
If you are investing in mutual funds to accumulate a corpus over time, you will have to focus on ‘time in the market’ instead of ‘timing the market.’ Market volatility is widely known. Therefore, the price of the low-performing assets might rise, and the price of the high-performing assets could fall. Therefore, staying in the market is crucial to get the most out of your mutual fund investments. The longer your investment period is, the better results you will attain from it. Consequently, rushing behind ‘timing the market’ might not provide you the returns to its full potential.
On a Parting Note
In conclusion, mutual funds have become an indispensable tool for building wealth in today’s age. They offer a diverse range of options to accomplish numerous financial goals. You can get growth through equity funds, stability via debt funds, and relish the balance of both in hybrid funds; there is something for everyone. Regular portfolio reviews are essential to align your investments with your financial goals. Moreover, focussing on ‘time in the market’ rather than ‘timing the market’ is the key to maximise your returns. Embracing mutual funds is a wise and contemporary approach to securing your financial future.
