Many have a general perception that if one had lot of money, one would have a better plan to invest and grow it properly. However in reality what matter is a better plan to make more money. Most of us think that lack of funds prevents us from securing our and our family’s future. This thinking prevents many of us to grab the early bird advantage and hamper financial goals. As mentioned earlier with right approach and planning financial goals can be achieved with whatever you manage to invest. Mutual funds help to create wealth in the long term if invested with patience and with proper guidance.
INVESTORS NEED TO SAVE REGULARLY INTO ASSETS THAT CAN BEAT INFLATION TO MEET THEIR FINANCIAL GOALS.
Saving and Investing There is big difference between saving and investing. Just saving will not help to grow money which in turn doesn’t create inflation beating returns. Also, the earlier youstart investing, the more wealth youcan create. An early beginning in allwalks of life is a good recipe for successand the same holds true for investing.Early birds have an advantageover those who starts late.They manage to save a decent pilefor all their requirements with lesshassles. The essence is to invest earlyand remain invested for long, so thatyour money gets the maximum time togrow to the required levels and at therequired time.
Why Mutual Fund Mutual fund is a financial product that pools money from different individualsand invests it on their behalf into various assets like equity, debt, money market instruments, etc. Investors pool their money with fund manager who invest in securities which generate returns and pass back to investors. Mutual fund is diversified, professionally managed portfolio of securities. Your investments is pooled along with others investments. Risk diversification – investing in a pool of funds comprising of 50-60 stocks from various sectors. Investing for longer term helps to beat inflation as well as increase value of invested amount. Investing in mutual fund gives you freedom from daily tracking of stock market.
Power of Compounding Albert Einstein famously said that, “Compound interest is the 8th wonder of the world” .Power of compounding gives you theedge—the more time your moneygets to grow, the more you gain. If you start saving early, even in smallamounts, it will help you build a sizeablecorpus. The rule is to invest regularlyand keep investing the returns.As a result, your earnings will alsoparticipate in getting more returns.An early start to investing in equityMF schemes also inculcates disciplineas you invest regularly. Stockmarketsremain volatile on the short-tomediumterm, but average-out overthe longer horizon. An investor, whoremains invested over the long termeven during the ups and downs of thestockmarket, is largely unaffected.And, most importantly, mistakes madeduring the initial days helps one learnthe basics of investing, which in turn, helps you become a mature investor.
Selection of Funds Although investing in an MF schemerelatively carries less risk comparedto investing directly in the capitalmarket, one must exercise cautionwhile selecting the right MF scheme,especially if the investment is for meeting long-term goals. Selection of funds must be done according to once Risk Capacity and Risk Tolerance. Funds past performance doesn’t guarantee future outcome. One must analyse risk, investment horizon, financial goal while selecting the right fund. Help of financial advisor is much important and valuable.
SIP – Regular, Disciplined way of Investing A systematic investment plan (SIP)allows an investor to invest a specificamount in MF scheme of his or herchoice over a certain period. WhileSIPs are available for all MF schemes,they are most effective in equityschemes, as they are a more volatileasset class than debt. SIPs help inregular savings as well as in riding onthe volatility of the equity market.An ideal way to profit from stockmarketvolatility is to buy units whenit is trading low and sell them whenit is at a high. But that’s easier saidthan done. It is here that SIPs come inhandy. They help an investor buy moreunits when prices are falling and fewerunits when prices are rising. When thenet asset value (NAV) of an MF schemefalls because of a stockmarket downfall,you accumulate more units at lowerrates, while in a rising stockmarketyou are allotted fewer units.Over long periods, SIPs help lowerthe average purchase price of units.Technically, SIPs keep the averagepurchase price of units down, withouthaving you to second-guess thestockmarket situation. Besides, the investment in instalments (since an SIPinvestment involves investing a fixedamount at regular intervals into anMF scheme), help you achieve a higherreturn from equities than other investmentmethods. SIPs are most-effectiveover long periods of time—the investorprofits from the appreciation equitiestends to show over the long term.
Tax-saving Mutual fundsto create wealth MF investment also helps in planningone’s taxes and thereby reducingthe tax burden. Investing in specificMF schemes called Equity-linked SavingsSchemes, popularly known asELSS, reduces one’s taxable income by the amount invested (up to 1.5 lakhas per Section 80C of the Income TaxAct) and, thereby, reduces hisor her tax liability. ELSS could be thestarting point for new investors, asit offers market-linked returns withshorter lock-in period, as well as thebenefits of tax-saving.ELSS can be used for creating wealthto meet your long-term financial goals.As the name suggests, an ELSS is asavings scheme that’s linked to equity.Technically, an ELSS is similar toany diversified equity MF, which routesyour investments into the equitymarkets. Like any other MF scheme, ELSS is also managed by professionals known as fund managers. It standsapart from a normal MF as it carriesa tax benefit on the amount investedand, thereby, has a lock-in period ofthree years. Before you invest in anELSS, estimate your total tax liabilityfor the year. Then, based on your riskprofile, choose among various tax savingsinstruments, including ELSS, andlink it individually to your long-termgoals. If properly chosen and rightlyinvested, ELSS can be agood kicker in your MF portfolio overthe long term.
Mutual Funds For retirement Retirement is one financial goal thatlargely takes a back seat for most of us,but those who pay attention to it earlyon in their life stand to gain. Withlife expectancy on the rise, the nonearning period in one’s life is bound toput that much strain on your retirementyears if you do not plan for it inadvance. So, remember, the earlier youstart, the lesser you will have to saveregularly and equity MFs are just rightvehicle for it to achieve your desiredretirement corpus.Invest according to your age , risk profile, lifestyle and expected retirement corpus.
Happy Investing. Author is Mutual Fund Advisor and can be contacted on 8530146846.
Will the stamp duty on mutual fund investments affect you significantly?
Stating From 2000 SIP to creating corpus of 300 times monthly expenditure
You don’t need wealth to create wealth. Just need action in the right direction