Mutual Funds: Ideal Investment Avenues For Wealth Creation

As vehicles for achieving various financial goals across timeframes, mutual funds have become ubiquitous in the investment landscape. Indeed, in the past 10 years and especially in the postpandemic era, investors have taken to mutual funds by the droves. In the last five years, assets under management of mutual funds have grown at a compounded annual rate of 22 per cent to ₹67.1 trillion as of September 2024. Investments through the SIP (systematic investment plan) have topped ₹24,500 crore.  [EasyDNNnews:PaidContentStart]

Mutual funds are clearly well-placed for creating long-term wealth for investors. Goal-based planning, wide-ranging options for varied risk appetites, asset allocation, professional management, deployment of periodic or lump sum amounts – all are made possible via mutual fund investments. They offer a systematic pathway to prosperity. Moreover, mutual funds suit a multitude of investor categories – lay, seasoned, conservative, aggressive and balanced. 

Options for all Types of Investors -
Mutual funds span different asset classes – equities, bonds, and commodities. Thus, there are equity, debt, hybrid and commodity (gold, silver, etc.) funds. Under equity funds, there are schemes based on market capitalisation (Large-Cap, Mid-Cap, small cap, etc), factors (quality, momentum, value, etc.), themes, sectors and indices. Debt Fund options are based on duration, gilts, target maturity, corporate bonds, banking and PSU debt, liquid and money market securities, and so on. 

Then, there are hybrid schemes that mix equity and debt in varied proportions. So, there are conservative, balanced advantage, aggressive hybrid, and multi-asset allocation funds, among others. There are Hybrid Funds as well based on derivatives – equity savings and arbitrage schemes. Finally, there are commodity funds based on gold and silver. There are international schemes as well that invest in overseas stocks. 

Thus, for investors of all hues and risk appetites, there are enough options to benefit from. 

Enabling Goal-Based Investing -
As these are investment vehicles with options that cater to short, medium and long-term goals, planning for financial targets becomes easier for investors. Leaving a legacy, retirement, children’s college education and their marriage, down payment or full amount for dream house purchase, overseas holidays – these are some common goals that can be planned for with the help of mutual funds. Based on an investor’s risk appetite, goal horizon and available surplus, specific schemes can be selected. 

Knowledgeable and seasoned investors can opt for the DIY mode of fund selection. Investors with limited knowledge, skills or time to track the markets can take the assistance of an investment advisor or a mutual fund distributor. For example, a short-term goal would entail investing in debt or conservative hybrid funds. A medium-term goal would mean investing in balanced advantage, aggressive hybrid and multi-asset funds. Long-term goals and generational wealth can be achieved via equity schemes by staying invested for decades. 

Asset Allocation made Simple -
One of the most critical ingredients for wealth creation over the long term is asset allocation. Since mutual funds give access to multiple asset classes, the task of allocating to different avenues is made relatively simpler. Equity funds are long-term wealth creators. Debt funds help in providing stability by delivering steady returns, while gold ETFs or fund of funds can help in hedging the portfolio against inflation as well as rupee-dollar depreciation. Thus, a balanced portfolio can be created by combining mutual funds from various asset classes and categories to reach all the desired financial goals and create significant wealth. 

Systematic and Lump Sum Investments Possible -
Despite being market-linked products, investments in mutual funds can be started with tiny amounts as low as ₹500. For significant long-term wealth creation, setting aside a significant portion of your surplus and stepping up investments as disposable income increases is an important step. For those with uneven cash flows such as business and self-employed persons, lump sum investments can be made when money becomes available. Hybrid and debt category funds lend themselves to lump sums and SIPs. 

Professionally Managed and Well-Regulated -
Market regulator SEBI has strict mandates for all mutual fund schemes across categories. It has thorough compliance requirements for all stakeholders. The regulator also keeps a check on fund expenses, ensuring that the costs are moderate for investors. Fund managers also conduct deep analysis on the securities that they invest in, apart from basing decisions on rigorous internal models, thus providing maximum investment security. 

The writer is a Mutual Fund Distributor. ■ Email : [email protected]

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