Want to Buy a Home or Save for your Retirement? Choose the Right Types of Mutual Funds to Achieve your Goals
Mutual funds are flexible investments which offer professional management and diversification. But what is the key to achieving success with mutual fund investments? Selecting the right fund as per your financial objectives!
You plan to save for your child’s education and marriage. You also want to save taxes and believe it is the right time to save for your retirement too. And of course, you’d want to buy a house of your own and upgrade your car. This a mix bag of short-term, medium-term, and long-term financial goals which the majority of Indians want to achieve.
Just as the financial goals of every person are different, there are different mutual funds to achieve different goals. You might be aiming for long-term wealth creation or might just want to park your ideal funds for a short duration. You might want more exposure to a particular sector or want to diversify into other assets like gold. With so many different types of funds now available, there is something for conservative and aggressive investors, long and short-term goals, all the different age groups and every wallet size.
Let us have a look at some of the most common financial objectives and what type of fund is right to achieve those objectives.
Retirement Planning- Equity mutual funds
You might have heard experts say that you should start retirement planning the moment you start earning. Hence investing in a Mutual fund is an excellent way to achieve such long-term goals. If you are still in your 20s or 30s, aggressive investment in diversified equity funds is highly recommended. While equity funds are known to be risky, they also have the most upside potential. In the long term, the equity market is known to outperform other assets.
Saving for your Child- Balanced funds
With the rising education costs, it is better to start saving for your child’s future as soon as possible. A balanced fund might be the best choice for such long-term goals. The balanced funds divide your investment between equity and debt. While their returns might not be as impressive as pure equity funds, they offer balanced returns with lower risk. Such funds are also ideal if you want to save for your child’s marriage.
Buying a house or car- Debt funds
Not every goal is long term. You might be saving for the down-payment of a house or might want to buy a new car in a few months time. You should avoid equity-related funds if you have such medium-term goals. Debt funds can be an excellent choice for such goals. These funds invest your money in deposits and bonds majorly and carry minimum risk. You can find short-term, medium-term and long-term debt funds.
Regular Income- Monthly Income Plans (MIPs)
A lot of investors like to earn regular income from their mutual fund investments, especially the ones who are about to retire or who have already retired. Monthly Income Plans (MIPs) can be a great choice for such investors. These funds invest most of their money in the debt market and the rest in equity to provide an excellent combination of stability and higher returns. With the help of the investment in the equities, these funds run ahead of the inflation.
Saving taxes- Equity-Linked Savings Scheme (ELSS)
If you want to save taxes, ELSS funds are the best bet. The investment in these funds is eligible for deduction under Section 80C, and the income generated from capital gains and dividends are tax-free. Also, as compared to other popular tax-saving instruments like FDs, NSC, etc., they have a shorter lock-in period. These types of mutual fund are similar to diversified funds but have a lock-in period.
No matter what your goal is, there are now funds for everything you’d want to achieve. Before you start investing in mutual funds, make sure that you first know your objectives as this will make it easier for you to select the right fund for your investment.