Planning for the future? Spent just a few years in the corporate arena? Earning a decent salary? Worrying about whether the existing pace of income growth be sufficient to live post-retirement? Lots of responsibilities like education and marriage of kids lie ahead? Well, these questions do come to the mind of an individual who is serious about the penny and the future. I hope you echo the same views. What should you do then to fulfill all your financial goals without being made to hurt your precious little wallet? In my view, mutual funds could be the tool to reach the pinnacle of the financial harmony.
Yes, there are market risks associated with the mutual funds. But all that can nosedive or even vanish if you are ready to befriend mutual fund for a long time. The choice of mutual funds for investment depends on your financial goals and risk appetite, which ultimately dictate the period for which you need to stay invested. Therefore, the definition of best mutual funds differs among the individuals. So, know the best mutual funds for investment with us as the article treads along with key information for you to read.
What is Mutual Fund?
Before knowing the best mutual funds for investment, let us be briefed on what mutual funds are and how they function. Mutual funds are a collection of money from various investors. The money is collected by the asset management company (AMC), which offers a wide range of mutual fund options for you to subscribe. Mutual funds diversify your investment across a myriad of equity, debt and money market instruments to offset the risk arising in one security with the gain in another. So, you can say mutual funds secure your investment via its diversification.
The best mode to invest in mutual funds is through Systematic Investment Plan (SIP) by which you can invest in small amounts. You can start with as low as 500 monthly. You can use your salary hike, if any, to increase the amount of investment to accomplish the goals quickly.
Best Mutual Funds According to Goals-
The investment goals can be varied. However, on a general note, it can be anything from the ones stated below.
- Additional Income Source
- Buying a Home or Car
- Child Education & Wedding
- Post-retirement Corpus
- Beating Inflationary Pressures
Most of the goals mentioned above require you to invest for a mid to long-term. So, you should eye on picking the best diversified equity funds that invest mainly in the equities of various companies to appreciate the growth of the capital invested. These funds also invest in debt instruments to a smaller degree to ensure the regular flow of income and safety of your capital. A long-term investment of 5-10 or 10-20 years is what required to accomplish these goals.
While picking the diversified funds, do check their recent and past performance to get an idea of what they have done for the investors in terms of returns. Don’t be too influenced by the massive return that they would have posted now, Instead, go for a comprehensive view and check the long-term performance. If the performance of the fund is found to be excellent or satisfactory in a period of say 5-10 years, pick it. Else, look for suitable alternatives to fulfill your financial goals.
Best Mutual Funds According to Risk Appetite-
The amount of risk you can take goes a long way to deciding the best mutual fund options. You could be willing to earmark a majority of your corpus in equity despite the fact that risk element there is on the higher side. But your friend would be more inclined towards the safe option of debt investments. Similarly, you can find people with moderate risk-taking ability. So, depending on the risk profile, the investors can be classified into the following types.
Conservative Investors- These class of investors aim mainly for safety and want regular income to feed upon. If you figure among these investors, better you invest in debt and liquid mutual funds, which primarily invest in corporate bonds, certificate of deposits, fixed maturity plans (FMPs), monthly income plans (MIPs), etc.
Moderately Aggressive Investors- Want growth of the capital and safety at the same time? If so, you figure among the class of moderately aggressive investors. The best mutual fund options for you are a mix of balanced, income and index funds. Balanced funds invest both in equity and debt instruments. However, the quantum of asset allocation would depend upon the orientation of the balanced funds. So, if it is oriented towards equity, the allocation of assets would be more towards the stocks. Similarly, the debt-oriented balanced funds would invest mainly in debt instruments.
Income funds invest in MIPs, FMPs and and short-term maturity instruments, While the index funds correspond to the stocks listed on the stock exchanges.
Aggressive Investors- In for a long journey with mutual funds? Is your risk ratio high? Looking for capital appreciation? You are a proud member of the aggressive investor class. Without a slice of doubt, it’s the equity funds that can elevate the value of your investment and let you meet your goals.
You have now got an idea of the type of mutual funds that can suit your investment taste. Always take your investment goals and risk profile into consideration before choosing from the funds. Doing so would let you reach where you wanted to be.
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