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If you have some goals to achieve in life and you want to achieve financial stability, you may need to get financial planning. Financial planning is something that every person should consider. The investment market is flooded with numerous investment products. New investors may find it difficult to go through multiple investment schemes and narrow down to one scheme. But if you have defined short-term and long-term goals, making an informed investment decision is possible.
If you know your financial goals, you can have a clear idea of how much money you need to invest at regular intervals to get closer to your goals. But knowing your financial goals isn’t enough, investors need to understand their risk appetite before making an actual investment. A risk appetite is an investor’s ability to risk their funds with a particular investment scheme in order to gain some investment value. An individual’s risk appetite may vary depending on factors such as age, income, and existing liabilities. Risk averse people usually settle for investment schemes that offer low fixed interest. However, if you are okay with taking some risk with the hope of earning market-related returns over the long term, you can invest in mutual funds.
What are mutual funds?
In recent times, mutual funds have gained popularity among Indian investors. Many individuals are considering investing in mutual funds because of the capital appreciation they have provided in the past. What fund houses do is they collect money from investors who share a common investment objective and invest in various money market instruments like stocks, debt, corporate bonds, treasury bills, government bonds etc.
Mutual fund investors get shares in the form of units. Investors are allotted quantum units depending on the investment amount and current NAV of the fund. The performance of a mutual fund depends on the performance of its underlying assets.
What are Equity Mutual Funds?
Mutual funds Fund size, asset allocation, investment strategy/objective, risk profile etc. are further classified for certain individual characteristics. Equity mutual funds are funds that invest mainly in equity and equity-related instruments. An equity fund typically invests 65 to 80 percent of its total assets in equity and equity-related instruments.
Why are equity funds good for long term investment?
Equity funds, as the name suggests, invest most of their assets in stocks and other equity-related instruments. Ideally, equity oriented schemes will give the desired results only when invested in them for a long period of time. So anyone with a long term investment horizon can invest in equity funds. If you have long-term goals like retirement planning or securing your child’s future, you can invest in equity funds. If you want to see your investments grow, you may need to give it some time. Especially when you invest in equity funds, these funds take some time to develop. If you invest for the long term, you can beat inflation. Remaining invested for the long term has its own advantages. If you start a SIP in equity funds and have a long-term investment horizon, you can benefit from the power of compounding. Consolidation has the potential to convert small investment amounts into large corpuses. So, if you really want to see your investments grow, you may need to continue investing systematically for the long term. If you withdraw your capital gains from equity funds after 12 months, Rs. 1 lakh nil. This could be another reason why one should consider investing in equity funds for the long term. Investing in equity funds through SIP over the long term enables investors to benefit from rupee cost averaging. As the fund’s NAV falls, investors are allotted more units. On the other hand, if the NAV of an equity fund rises, investors will be allotted fewer units.
Equity funds can help an investor build a decent corpus over the long term, but investors should consider investing in them first. This is because investments in equity funds are exposed to market volatility and your portfolio is likely to suffer losses. Also, returns from equity fund investments are never guaranteed. So, if you are interested in investing in equity funds and don’t know which one to invest in, you can do some research about them and invest in a performing equity fund. If you feel you need more help, it is best to seek the help of a financial advisor.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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