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Achieving financial goals through mutual funds

, October 7, 2019, 0 Comments

mutual-funds-franklin-templetonMutual funds are one of the leading market-linked investment instruments that can help you create wealth. To meet any unique financial goal you can consider investing in different types of mutual funds. Whether you are looking to build a corpus in the long run or seek short-term gains, there are a host of schemes for every type of investor. Thus, mutual funds can help fulfill various financial goals depending on your investment horizon and risk tolerance.

In this article, we look at the various benefits of mutual funds and how you can use them to meet your financial aspirations.

Know your current financial status
Identifying your present financial status is the first step towards creating an investment strategy. It includes calculating your current earnings from all sources, living expenses and savings at the end of the month. This can give you an idea of the surplus money you can afford to invest in mutual funds online and the period you need to stay invested to achieve your financial objectives.

 Assess your risk tolerance
Once you have arrived at the surplus cash, you can invest in mutual funds; the next step is to identify the asset class based on your risk appetite. The amount of risk you assume can depend on various factors such as age, income, time horizon and liquidity of your investment. For example, your risk appetite could be higher if you are in your 20s compared to when you are nearing retirement. Similarly, if you have a steady income and a separate emergency fund for unforeseen events, you can make higher investments. On the other hand, an individual starting a career with inadequate funds can take lower risks.

Ascertain your asset allocation
To enjoy enhanced mutual fund benefits, apportion your surplus money in various asset classes depending on your short-term or long-term investment objectives. So, for example, if your investment horizon is five to ten years or longer, you can consider investing in equities. For a shorter investment horizon, you can view debt funds. If you are a conservative investor, you could even look at hybrid funds to meet your long-term financial goals as they are known to offer stable returns and carry lower risk.

Select the right schemes
Diversify your investment within different asset classes to spread the risk. The optimum way to achieve this is to invest in three to four flexicap/multi-cap/diversified funds. You can also invest in separate fund houses to avoid risk in case one fund house underperforms. If you belong to a higher tax bracket, you can consider arbitrage funds with dividend options. These funds can be ideal if you have an investment period of over sixty to ninety days.

Thus, you may want to consider making mutual fund investments a part of your financial planning to achieve your financial goals in a structured manner. Such goal-based investing can not only keep you focused but also better prepare you against short-term market volatility.

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