Why It’s Always the Best Time to Invest in Mutual Funds

October 18, 2017 at 1:33 PM Leave a comment

We’ve heard time and again that financial planning is the key to a secure future.

The hard part is choosing the right investment among the thousands of options available in the market. One such investment which an investor of any age can start with is mutual fund investment. Read on to know how you can make mutual funds work for you.

Everyone must take it upon his or herself to jot down his goals and back it up with a good financial plan. Regardless of age, a young adult (around 25 to 36 years), middle-age (between 35 and 55) or retired (55 and beyond). It’s vital to have a good financial portfolio which combines all the asset classes that a person can invest in.

Mutual funds are fairly advantageous over others because the pooled investment avenue provides an individual with the benefit of investing in equities, liquid funds, and debt. You cannot randomly invest in mutual funds. Based on the financial goals and investment aims of the investor, a specific type of fund that suits him must be chosen.

If you don’t like risks, you may prefer equity schemes to debt while you start with a short-term equity schemes. If you have growth and capital appreciation, your investment objective will look at equity schemes as compared to others.

Age has a crucial role in getting the right balance between the many available mutual fund schemes. A simple and sweet thumb rule to be followed by every in selecting the right mix of equity and debt is to calculate it on the base of the age of the investor.

To calculate the debt to equity allocation, the age of the investor should be subtracted from 100. For instance, if the investor is 30 years old, then subtract 30 from 100, giving 70 as the remainder. This exemplifies that the portfolio of the 30-year-old investor should contain 30% debt and fixed instruments and 70% of equities and equity-related products.

One widely used in selecting the right fund and taking the basis for a model portfolio is Jacob’s Four-Step Programme, which includes the following:

Develop long-term goals. After deciding on a goal, separating your long-term and short-term goals should be your next agenda. With long-term goals in place, planning the finances to make them happen becomes easier. You must be realistic about the returns an asset class can offer as the returns may differ from time to time based on the market scenario and other factors that affect it.

Check the asset allocation. Be it equities, money making instruments, or debt, the right mix or allocation can be done based on the income you (the investor) have as well as your risk-taking capacity. Your goals will help in deciding the appropriate investment allocation.

Determine sector distribution. You need to plan the right amount of investments, something that will differ based on your unique circumstances. Sector distribution must be done based on the long-term goals you have. If you’re looking at quick liquidity, then money market schemes must be assigned more than equity or debt funds.

Choose specific fund managers and schemes. After finalizing your long-term goals, plus assets allocated and sector distribution is accomplished, the next step is to decide your mutual fund investment company and their specific product. You have an array of choices, so research well before making any decision.

It is never too late to begin investing in mutual funds. But when an investor actually gets to the act of investing he must bear in mind the implications that different schemes have on his financial plan in different stages of his life. If an individual is not able to make a financial plan by himself, it is advisable to take help of a financial planner as it will make the entire investment process a lot simpler and quicker.

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