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If you’re a financial stability seeker and haven’t figured out how to go about financial planning, it’s high time you started. Some people are naturally good at money management and financial planning comes easy to them. The key to financial planning is understanding your short-term and long-term financial goals. But how do you invest if you can’t save anything in the first place? Millennials understand the importance of saving. Remember that you will need more money in your old age than you need now, but if you spend everything you earn and fail to discipline yourself, you will never achieve financial stability.
If you have defined short-term and long-term goals, it’s good to understand your risk appetite. Risk appetite is the investor’s ability to take a certain level of risk through an investment with the hope of gaining some capital appreciation over the long term. Every investment scheme has a different risk profile and therefore, it is important for us as investors to determine our appetite for risk before making any type of investment. Some people are risk averse and don’t want to take any chances with their finances. Such people should settle for investment schemes that offer low interest rates.
There are some investors, though, who don’t mind taking on additional risk with the hope of getting better capital appreciation. Such individuals with young and aggressive mindset can invest in equity mutual funds.
What are Mutual Funds and Equity Funds?
In recent times, mutual funds have gained popularity in India. Mutual funds They are considered as an investment vehicle by many individuals because of the returns they have provided in the past. However, since mutual fund investments are subject to market risks, investors should understand that returns on these investments are never guaranteed.
SEBI, the regulator of mutual funds in India, has designated mutual funds as a, ‘A mechanism for raising funds by issuing units to investors and investing funds in securities as per the objectives expressed in the offer document. Investments in bonds are spread across a wide cross-section of industries and sectors, thus minimizing risk. Diversification reduces risk because not all stocks move in the same direction at the same rate at the same time. Mutual funds offer units to investors based on the amount of money they have invested. Investors of mutual funds are called unit holders.‘
Mutual fund companies share a common investment objective and collect money from investors and invest this pool of funds across the Indian economy in equity, debt, call money, certificates of deposit, corporate bonds, government bonds etc. Units are allotted to mutual fund investors. quantum with the investment amount and depending on the current net asset value of the fund.
Mutual funds are further classified based on certain unique characteristics like asset allocation, risk profile, investment objective/strategy. Equity funds are mutual funds that mainly invest in equity and equity related instruments.
When is the right time to invest in equity funds?
There is no ‘right time’ or ‘right time’ to invest in equity funds. As mentioned earlier, equity funds allocate a large portion of your assets to equity-related instruments. Equity oriented instruments take time to grow, so the sooner you start investing in equity funds, the better off you will be. Remember that timing the market is difficult even for seasoned investors. So, if you are going to wait until the ‘right time’ comes, you may miss out on an opportunity to start investing early. If you invest early, you also benefit from a powerful tool like compounding. Compounding has the power to convert small investment amounts into decent corpuses. Also, it is better to combine equity funds with long-term financial goals like retirement planning or securing your child’s future. If you have invested for the long term, your investment can also beat inflation. So, the earlier you start investing in equity funds, the more chances you have of building a decent corpus.
Now that you know about the right time to invest in equity funds, are you planning to invest? Keep in mind that there are many mutual fund schemes to choose from, so it’s a good idea to do some basic research about the fund before investing. Apart from the fact that you should consider investing in equity funds owned by reputed AMCs, you should check the past performance of the fund and consider investing in an equity fund that is consistently performing. Finally, if you feel that you are unable to make an informed investment decision and need further assistance, it is advisable to seek the help of a mutual fund professional.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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