How to Use Mutual Fund Investment for Financial Planning

Many people find finance fascinating, particularly those working in other unrelated fields. People get fascinated by the simple idea that their money can work for them. However, it’s more challenging than it seems. To get better outcomes, you have to plan finance and then make investments.

The first requirement is that there must be enough funds and other resources to enter the markets. It would be best if you could find some specific investment opportunities. Making profits from those opportunities requires complete research, analysis, and discipline.

According to Economic Times reports, mutual fund investors earn 6.5% annually. It may vary based on the period of the investment they made. Mutual Funds are expected to hit $100 trillion by 2028. Many people today might have the money, time, and other resources to get ahead in such activities.

It’s better that you do proper research to plan your financial strategy and invest in mutual funds for better returns. Let us briefly learn about mutual funds to boost personal financial planning.

What are Mutual Funds?

A mutual fund is people pooling money together for a specific period and investing in various securities. You can buy mutual fund ‘Units’. Units of a mutual fund scheme represent investors’ share of holding in the scheme. The stakes are selected based on personal financial planning and the scheme’s investment goal in mind.

It is something you buy with money gathered from other investors. A fund manager manages and invests the gathered money in financial assets like stocks, bonds, etc. A team of experts monitors the mutual fund and gives financial advice to the investors. 

The Securities and Exchange Board of India (SEBI) is the administrative body over Mutual Funds in India. It has appointed the Association of Mutual Funds in India (AMFI) as a primary regulator of mutual funds. AMFI is a non-profit organization that monitors mutual fund operations in India. 

Types of Mutual Funds

There are several types of Mutual Funds that attract investors. Mutual Funds are classified based on asset class, speciality, structure, and returns. The types of Mutual Funds in India are listed below- 

• Growth Funds

These schemes primarily invest money in equity stocks to provide profitable returns. They are considered ideal for investors with long-term investments. Investors usually need a 5 to 10-year investment period and risk-bearing in growth funds. 

• Equity Funds

These funds make investments in equity stocks and company shares. Equity funds are considered to be having a high risk-to-reward ratio. The size of the equity fund is predicted based on Market Capitalization. Equity Mutual Funds are classified by Investment Strategies. The results of those techniques are reflected in the equities they own.

• Index Funds

These are funds that invest in securities. They usually represent a specific index to predict the movement and returns of the index. The market will exceed any individual investment over the long term. Index funds aim to match the risk and return of the stock market.

• Money Market Funds

These funds invest in ready-to-trade securities, such as Treasury bills and commercial papers. Money market funds are also known as secure investments. They are ideal for those searching for immediate but reasonable returns. The terms “money markets” and “cash markets” refer to financial markets. A high level of risk often characterizes these types of funds.

• Real Estate Funds 

These are the investment funds that finance businesses in the real estate industry. These funds can be used to purchase real estate, build homes, plan finance, or hire property managers. However, real estate funds give a more relaxed return on investments.

• Debt Funds

These investing firms invest in debt-related securities. For instance, fixed-income assets, government bonds, and corporate debentures. In Debt Funds, however, no tax is subtracted from the source. Therefore, debt funds are low-risk investment options in personal financial planning.

Benefits of Mutual Funds

• Risk diversification to several investment classes
• Professional Management of securities
• Monitoring by experts
• Higher Liquidity
• Multiple modes of investment
• Encouragement for future investments
• Tax Benefits
• Operational Transparency
• Systematic Investments.

Mutual Funds as an Investment Tool

An asset management company (AMC) creates a mutual fund by combining investments from multiple sources. These can be different individuals and business investors with similar goals. A fund manager professionally manages the pooled investment by purchasing shares in the stock market. It helps maximize returns for the investors while following the fund’s investment goals. 

Fund Professionals with a proven track record of managing assets and complete market knowledge are fund managers. Investors make a profit from regular dividends, interest, and capital growth. They reinvest their profits by growing asset values or by financial advice from experts. Moreover, investors receive a consistent income through a dividend option. 

Factors You Should Consider Before Investing

• Investment Goal – Observe and define your financial goals and objectives.
• Making a Choice – Choose a low-risk type of fund from the various types of Mutual Funds if you are a beginner. 
• Expand Portfolio – Invest in more than just a single mutual fund. Expand your portfolio and improve returns in case one of the funds underperforms. 
• Updated Documents – Keep your KYC and mandatory documents updated timely. It will eliminate the chances of money laundering and fraud. 
• Financial Advice – Always seek financial advice from professionals if your confidence and investment knowledge seem insufficient. 

Conclusion

Mutual funds come in a wide variety. An investor can systematically purchase them after doing proper research. It helps the investors to get benefits in the long term. Recently, many new mutual funds have been developed, offering profitable options for all kinds of traders. However, it is important to know that mutual funds are subject to market risks. 

Understanding the market risks associated with mutual funds is essential to avoid following the crowd. You should plan finance and make an investment strategy. It will help you choose the right fund to invest your money in. Piramal Finance gives you efficient and the best financial advice at your request. Contact Piramal Finance to seek assistance from experts regarding stocks, mutual funds, and personal loans.