An investment activity must begin with a clear goal in mind. By goals, we mean financial goals. A financial goal is one that can be measured and converted into rupee terms in terms of future costs. Having identified and delineated your goals, the next step is to implement your plan to achieve them. The fact is that you will never be able to accomplish these goals if you keep your money idle and not earning anything. Your investment plan comes in handy in this regard.
In order to help their clients meet their long-term and medium-term financial goals, financial planners rely heavily on mutual funds. The preference has been for mutual funds in most cases, in spite of the many options available on the market, such as direct equity, debt, gold and endowment products.
A palate of product combinations on offer
That is one of the most significant gains from investing in a mutual fund. Equity funds can help you attain desired levels of wealth, whilst debt funds can provide you stability and assured returns. Money market funds and ultra short terms funds offer excellent liquidity options, while ETFs let you gain exposure to assets such as gold or indices. ELSS is a dual advantage option of wealth creation and tax efficiencies.
A product mix for each life stage
Throughout your financial planning journey, you’ll encounter many stages – from single to married, parent to grandparent and everything in between. Each phase will require different commitments to be prioritized such as a car purchase, buying a home, travelling and saving for your children’s education or marriage. Mutual funds provide the ideal option: they offer straightforward means of funding both your retirement and children’s future plans; you can invest with minimal effort, while at the same time adjusting equity and debt levels as necessary. All these features make mutual funds an outstanding solution throughout every life stage.
It is a good trade-off between returns and risk
Financial planning involves weighing the costs of different actions. Not investing or taking a conservative approach can lead to lower returns, while too much risk can make you susceptible to potential losses. It can also be hard for those without adequate information and insights to manage these costs. Mutual funds provide an easy way around this, as the fund manager does the work of balancing risk with portfolio adjustments and diversification. This provides individuals with more opportunity to focus solely on their overall portfolio allocations.
Professional management is what you can bargain for
Nowadays, investing is more intricate than it was in the past. With technological evolution happening at a rapid rate, companies are losing their competitive advantage much faster than they used to. We can see this through the comparison between the Sensex constituents of 1990 and 2017, where only a few names remain. Many erstwhile big fish have failed while new entrants such as those from IT, banking, pharma, and telecom have entered the market. The lesson here is that it’s close to impossible for an individual investor to be able to manage all these changes and adjust their portfolio accordingly. This is where mutual funds come in and can be very useful; with professional fund managers backed up by researchers and analysts sifting through piles of information, they undeniably have the upper hand.
As a result, mutual funds can play a crucial role in helping you realize your long-term goals. Along with the flexibility and professional management that mutual funds provide, they also bring with them an automatic alignment with a goal-based approach to financial planning.
