Discover how professionally managed, well-regulated mutual funds help achieve financial goals through strategic market exposure.
As market-linked products, mutual funds have been prominent in the past three decades and even more so over the past five years. Mutual funds assets under management have risen at 19% compounded annually over the past five years to Rs 64.5 trillion. These figures attest to the popularity of these investment vehicles as wealth creators over the long term.
Mutual funds are well-regulated, professionally managed and relatively simple investment products.
For retail investors looking to take exposure to market-linked products for reaching their financial goals, managing their portfolio risks via suitable asset allocation and considering periodic sums for deployment, mutual funds are ideal.
Avenues to prosperity
For investors considering goal-based planning, mutual funds are well-placed to cater to their needs based on their own risk appetites – conservative, moderate or aggressive – or their time horizon – short, medium or long term.
These schemes are available for all asset classes, including equities, bonds and commodities (gold, silver etc.). Some schemes also offer exposure to real estate linked instruments like REITs or InvITs.
Equity funds can be market capitalization based (Large, mid, small cap etc), factor based (quality, low volatility, momentum, dividend yield etc.) or even be passive schemes tracking specific indices.
Debt funds invests in bonds or other fixed-income instruments with durations ranging from overnight to those running to decades. These funds invest in money market instruments, g-secs, corporate bonds and NCDs among others. Duration, accrual, target maturity are some of the strategies available.
Hybrid funds combine two or more asset classes – such as equities, bonds, commodities, REITs, invITs or arbitrage opportunities – in varying proportions. Equity savings and arbitrage funds themselves are separate hybrid categories.
Thus, investors get access to a wide range of asset classes, either individually or in combination.
Mutual funds simplify the crucial task of asset allocation. For example, you can build a portfolio by selecting a mix of equity, debt and hybrid funds based on your needs, ideally in consultation with a mutual fund or a registered financial advisor.
Another key advantage of mutual funds is that they make goal-based investing simpler. For example, a short-term goal (say, 1-3 years away) can be catered to by investing in debt or conservative hybrid funds. A medium-term goal (3-5 years) can be accomplished by taking exposure to balanced advantage, aggressive hybrid and multi-asset funds. Long-term (5-10 or more years away) goals and creation of significant becomes possible by investing in equity funds and staying put for decades.
Mutual funds also enable investment of small sums that can be stepped up over time to achieve a sizable corpus. Investors can start SIPs (systematic investment plans) in the funds of their choice with sums starting from Rs 500 or Rs 1000, periodically, and increase this sum when their surplus increases.
For those with unsteady cashflows such as businesspersons or the self-employed, lump-sums at various intervals can be a good option to taking exposure to mutual funds.
So, your dream house, overseas holiday, large four-wheeler, child’s education and marriage, and your retirement can all be funded by systematic investments in mutual funds.
Fund managers have research teams closely examining stocks, bonds and commodities, apart from financial models guiding their strategies so that suitable investment decisions are taken.
With monthly factsheets and daily NAV disclosures, they are extremely transparent.
Disclaimer: This article is not part of the Outlook Money editorial feature. The views expressed are personal and do not necessarily reflect those of Outlook Money.
Readers are advisedto do their own research or seek professional advice before making any investment decisions.
Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not indicative of future results.
Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature