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Article | Sip - Sep 15, 2017 | 20:52 PM

Long-term financial planning with Mutual Funds

Birla Sunlife - Grow My Money - Long-term financial planning with Mutual Funds
Planning to save for the future? Then one of the investment options is Mutual Funds. For some people, the mere mention of Mutual Funds rings a warning alarm. But what you need to understand is that if you plan your Mutual Funds investments in a systematic way, then it helps to reap benefits in the future. Here are some tips/features which will come handy when you think of investing in Mutual Funds...

  1. Clarity of goals

You need to be clear if you have short-term goals or long-term goals in mind as the plan of action for both will be different. If you are planning for short-term investments, then the emphasis usually has to be on liquid funds and short-term debt funds. In case of long-term goals, you may look at options like diversified equity funds, thematic funds, Exchange Traded Fund’s etc.

  1. The three-step approach

When you decide to invest in Mutual Funds, you must first set your financial goals. Make sure that you follow a practical approach while setting your goals. Then do a thorough research and decide on which are the feasible Mutual Funds in which you might invest. Finally, invest in a few Mutual Funds. Do not try to invest in too many Mutual Funds in one go. Ideally, try to opt for big portfolios.

  1. Invest in equity

Those who wish to invest for long-term potential benefits may opt for equity. When you invest in equity, you have to wait with patience and they usually carry high risk. These investments seek capital growth and potential returns in the long run but slowly and steadily.

  1. Focus on the entire market cycle

The general trend is to invest in a Mutual Fund and then back out as soon as the market is down. However, your objective should be to focus on the entire market cycle. When the markets are down, you may focus on buying more units. If you exit the market during the slump, you may lose out on the opportunity to grab more units.

  1. Rework your investment commitment

When you start getting the returns from the investment, your money usually begins to grow. As your savings increase, you need to rework on your investment plan. You may try and increase the money that you invest in the Mutual Funds as soon as your savings begin to increase. This approach may help you earn more money than you had planned to when you sketched out your long-term investment goal.

  1. Start young and invest more

For getting maximum potential benefits from Mutual Funds in the long run, it is considered wise if you start young. Start investing whatever small amount you have at a young age, so that you may get potential benefits in the long run. Also, try not to stick to small amounts. You must get into the habit of investing more money as and when it is possible. This dual approach will help you achieve your long-term financial goals easily.

  1. You may opt for growth than dividend

When you make the investments, you have two options to choose from that is growth and dividend. Dividend involves withdrawal and the compounding effect is reduced. The growth option will give you the compounding benefit.

In a nutshell

Seeking to create wealth involves long-term investment plans. Investments made in Mutual Funds in a systematic way are one of the ways that aims to achieve your goals. What one needs to understand is that investing in a single mutual fund scheme is not going to help you achieve this. You need to consider other mutual fund schemes and must invest accordingly. You may consult your financial advisor before investing in mutual funds.

Only one word of caution is that before making the investments, you need to ensure that you read the fine print of terms and conditions carefully in order to avoid any problems at a later stage.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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TRivia

  • Indian Mutual Funds

    Indian Mutual Funds have currentlyinvested about 1.35 crore (13.5 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes. (March 2017. Source: AMFI)

  • AAUM

    Average Assets Under Management (AAUM) of Indian Mutual Fund Industry for the month of March 2017 stood at ₹19.26 lakh crore. (Apr 2017. Source: AMFI)

  • Equity-oriented Schemes

    Equity-oriented schemes account for around 32.8% of the industry's assets. (March 2017. Source: AMFI) Equity-oriented schemes derive 85% of their assets from individual investors. (March 2017. Source: AMFI)

  • HNI Investors

    HNI investors account for 20.98% of investments for a period of 12-24 months. (Source: AMFI)

  • Benefit of Index Funds

    Index funds usually have much lower operating expenses over actively managed funds.

  • What is Net Assets?

    This figure represents the fund's total asset base, net of fees and expenses.