Mutual Funds are the most simple, low cost, and tax efficient way to grow your wealth. In other words, it provides a steady flow of income or capital appreciation in the short or long term through a diversified portfolio at low cost. These are an ideal investment for those who don’t want to invest directly.
One of the most important factors, while drawing a financial plan is adjusting with time period, especially if you are a beginner. But there are several factors to be taken into consideration before investing in them. The most important factor that is taken into consideration is ‘WHEN’. The basic rule is, the earlier you start, the greater the chance of achieving your financial goals. Further, an early start will substantially reduce the investment amount to achieve your investment goals.
Let’s try to understand it through an example. An investor who starts investing at the age of 25, would yield Rs 1 crore at 60 (assuming an annual return of 14%), if he/she invest about Rs 901. Alternatively, if he starts investing at 30, the required monthly investment would be Rs 1,821 and in case, if he starts at 35, the monthly Sip would be around Rs 3,709. Moreover, as lately you join the investment, so does the value of the SIP will be.
The reason behind the increase in the value is due to the power of compounding. In simple terms, an investment along with the returns reinvested get multiplied and deliver better return over a longer period. Besides, the power of compounding, early investing forces an investor to become a disciplined investor. He/she cuts his expenses in order to assign an amount into the SIP.
Investing in Mutual Fund according to the Financial Goals…!!
Before investing in a mutual fund, you should prioritize your financial goals. Those goals should be realistic as well as have a particular time frame. This will enable you to achieve specific goals at different stages of one’s life by allocating money to different asset classes, in sync with your risk capacity and time horizon. One should ideally choose to invest via the SIP (systematic investment plan) route, as this will help you not to time the market. More so, the market is not idle all the time, one can take the benefits from both upward market trend and downward market trend.
In a bull market, the portfolio returns will be higher and in a bear market, one will get a chance to buy more units for the same investment. But the subsequent benefit will be availed only when the investor tries to stick for a long time as the market is highly volatile and it is quite difficult to time the market. Before investing in a mutual fund, you should read the policy document and conditions of the fund and should track the performance of the fund house and the manager. If you are looking for long term investment, then the equity mutual fund will be a best buy due to the power of compounding and tax benefits in the form zero long term capital gains tax for equity instrument.
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.