How to Invest in your Every Goal with Mutual Funds?

Introduction

Each of us is unique. We have different needs and goals in life. Some of us can ride along swinging markets, while some may need a relatively conservative investment tool. Our life goals depend on the phase of our life and the kind of person we are. If you have just passed out of college, you would probably try to clear off your education loan or buy your first car. Likewise, if you are newly married, you may want to buy a dream house or plan a luxurious vacation with your spouse. A couple of years and kids into your marriage, your objective may be quality education for your kids and so on.

All these goals may seem distant at the start, but they can be achieved if you make proper arrangements for a steady stream of funds to pay for these goals. Once you start earning money, planning to save a portion of your income and investing it correctly is the most logical thing to do. It is the only way to create enough wealth for accomplishing all your goals. However, the challenge is to find the ‘correct’ investment tool that is dynamic and will generate returns to satisfy every goal. A mutual fund is the ultimate answer to this challenge.

Additional Read: 7 reasons to invest in Mutual Funds

A Mutual Fund is a shoe that fits every size

Mutual funds are an investment vehicle through which you can invest in multiple types of assets. Its versatility is one of its biggest attributes. You will find mutual funds available in different categories and schemes based on the composition of their underlying assets. These asset classes include equities, commodities, debt instruments, money market instruments, etc. Each asset class has unique features, varying risk levels, and the potential to deliver returns of a certain calibre. Hence, you must invest your money in a scheme after thoroughly understanding its portfolio and investment objective. Moreover, you will also find that mutual fund schemes are classified into several types based on their asset class and investment style suited for investors having different time horizons and risk appetites. Thus, the risk appetite and time horizon after which you need the funds should also be considered while picking a scheme.

Additional Read: Here are the Types of Mutual Funds That You Need to Know

The idea is to identify and invest in a mutual fund scheme that will be most suitable for your investment goal concerning risks, returns, and time frame. For instance, let us assume you are investing to buy a house 10 years down the line. To work towards this goal, you need to take a home loan and create a big enough corpus that can be paid as a down payment. Here, returns from an equity growth fund can help with the down payment. Typically, equity growth funds are aligned toward capital appreciation. They are long-term funds that majorly invest in equities and hence, carry a fair share of risk.

Additional Read: What Are Fixed Income Mutual Funds?

If a majority of your investments lie in equity and you need steady returns, investments in debt funds are a good hack to diversify the risks related to your Equity Funds. Let us assume you are nearing retirement with big booty of savings, but have not made provisions for any regular income source once you retire to take care of your routine expenses. In such a case, opting for a scheme that has a dominant debt portfolio will be ideal for you. It is relatively less volatile and has the potential to give you a regular fixed income.

Mutual funds also have schemes to help you make your earnings more tax-efficient. This is especially a concern for all. Equity-Linked Savings Schemes are a great choice for you if you want capital appreciation along with tax deductions. However, you may enjoy the best returns here if your money is parked here for long. It is not rare for business owners to have some surplus lying in their bank account for a short while before it needs to be rolled out for business. You may want to multiply this excess amount before a financial obligation arises. In such cases, debt-based funds such as ultra-short-term funds, liquid funds, overnight funds, etc. can help in keeping your money secure while growing it.

You may be a newbie in stock markets with little or no time to track and study markets. You only periodically check the growth reflected by benchmark market indices, such as BSE’s Sensex, NIFTY, etc. Now, if you aim to gather returns in line with these market indices, a passive fund, such as an Index Fund is a great pick for you. The portfolio of such funds matches that of the market index and hence, they offer returns in line with it.

Something for Everyone

Mutual funds are an effective tool that appeals to everyone. You will find hundreds of variants in mutual funds created to suit varying investor risk-return profiles. Different schemes are made to match different goals. There is no investment goal that a mutual fund cannot help you in achieving. Let your investment objective dictate the scheme you should invest in. However, what if you do not have a goal before beginning any investment? Well, you can start an investment in mutual funds even without a clear goal. Investments in equity based growth funds are the best in such scenarios when you do not have any upcoming liquidity needs. It will serve as a provision if some financial obligation arises.

Additional Read: How to Use Mutual Fund Investment for Financial Planning

Conclusion

At times, the widespread offering of mutual funds may confuse you. Study the scheme’s performance record, its expenses ratio, and most importantly, its portfolio and investment objective to filter your scheme. If the confusion persists, do not refrain from consulting a mutual fund expert for correct guidance.