Broadly, there can be two investment goals:

1)            To make your money grow

2)            To generate income at regular intervals.

The former typically requires investment in equity funds while the latter requires investment in debt or fixed income funds. Equity funds may be a less suitable option for regular income owing to the structure of the asset class which is highly volatile with a higher risk of capital erosion in short term. However, mutual funds are a good alternative for short-term as well as long-term returns. Let’s see how:

SHORT TERM GOALS

If your financial goals are less 5 years away then these Goal can be described as long term financial goal.

As a general principal, if requirement of money is within period of 5 years and your requirement is not negotiable then it is important to play safe and put your money in relatively safer options of Debt Mutual funds. Debt funds are relatively less volatile with better consistency of returns. Hence they are more suitable for income at regular intervals and short term money requirements.

Planning for short term goals is a bit different from long term goals. While investing for longer term you are looking for capital appreciation and ready to take risk with your capital, the short term objective is more for safety over growth. Ensuring liquidity of your investment at the right time also matters when it comes to investing for short term goal. 

A major benefit of debt mutual funds over traditional products is the variety, Liquidity and convenience. One can invest in debt funds for even one working day to a few weeks or a few months or even a few years by choosing the relevant type of fund. Using SIP, STP and SWP investment options provide added convenience. Debt funds are also useful for investing both in rising and falling interest rate scenarios. Indexation benefits are available for debt funds whose tenure is above 36 months.

LONG TERM GOALS 

If your financial goals are more than 5 years away then these Goal can be described as long term financial goal. 

Equity Mutual funds are best investment option for long term wealth creation. Equity funds have been proved to be best investment option historically and must in your portfolio for long term financial goals.

 THINK LONG TERM: THINK EQUITY MUTAUL FUND

Wealth creation is everyone’s dream but not everyone can successfully do it. While various investment gurus have various ideas for wealth creation, we have tried to mention a practical few. If there is any formula for certainty of wealth creation then it is certainly “Long Term Equity MF”.

WHY INVEST IN MUTUAL FUNDS VS OTHER INVESTMENT OPTIONS

If you were to ask your parents how they invested their money, their answers would tilt in the favour of Fixed Deposits (FDs), Public Provident Fund (PPF) or gold. Their only investment in real estate is likely to be the house they had built around their mid-40s. But, you cannot really blame them for their investment decisions because it was not so common then to invest in mutual funds or shares. When it comes to your generation, there is a plethora of investment options to choose from. Mutual Funds have arisen to become one of the most favoured options of the latest generation. Here are a few reasons why Mutual Funds have unraveled to become a lucrative investment option.

MF vs Fixed Deposits

Most Indian investors prefer investing in FDs since they are considered one of the safest investments and can be withdrawn anytime (except tax-saving FDs with lock-in period of 5 years) with nominal penalty charges. However, interest rates are not attractive anymore and they have dipped even further after demonetization. Moreover, interest from FDs is subject to full taxation as per one’s marginal tax bracket which makes FDs extremely tax ineffective. It makes sense to invest in FDs only if you are extremely conservative investor or you have a short-term horizon.

MF vs Public Provident Fund 

Another popular investment among the investors with very low risk tolerance, PPF currently fetches the interest rate of 7.9%. Though the maturity amount and interest earned are exempted from tax, the maximum investment limit is only Rs. 1,50,000 per annum. PPF is also very low on liquidity as there is a lock-in period of 15 years and partial withdrawals can be made from the 6th year onwards only. The interest rate on PPF is revised every quarter, which means that the returns can go lower than what you expect. Whereas ELSS MF schemes have only 3 years as lock-in period and have generated 15-18% return if held for 15 years.

MF vs Gold

Indians are crazy about gold and the whole world knows about it. If they are not flaunting it, then they are hoarding it in their tijoris. Given that gold is a precious metal, it is often valued high in the market, even when the prices are tumbling down. While most people buy gold during weddings, festivals or special occasions, there is also a segment who invests in gold because either they don’t have bank accounts or want to avoid any documentation against purchase or sale. Gold is a highly liquid asset and as good as paper money. Unfortunately, people have a tendency to accumulate gold over generations and don’t sell it even when the prices are high or unless there is a dire need of money. If kept at home, then there is a risk of theft. If kept in a bank locker, there is a fee you need to pay. If you take insurance, you need to declare it. Then, there is a question of purity as well.

Over the past few years, gold as ETF (Exchange Traded Funds) has also emerged as a more convenient and secure option to physical gold. But, again, gold ETF is subject to transaction and fund management charges. So, in reality, you are not earning any return on the investment of gold and it is as good as a dead investment. It merely serves as an hedge against inflations and store of value.

MF vs Real Estate

It is fascinating how young investors are keen to invest in real estate as soon as they start earning or at least, have decent savings. But, buying a home should not be confused with investing in a property. What’s the difference? Well, you buy a home for personal use and most probably, take a loan against it. So, your investment is actually a liability and not an asset till you are paying EMIs. When you buy a property, you are investing the money which is lying idle with you (assuming and hoping you are not taking a loan!) with the intention of earning a return on it through recurring rental income or sale for capital gain. 

The rental income from the property is taxed at the marginal tax rate of the investor after deducting the payment of municipal taxes and the interest paid to banks on the property loan. It is also a common fact that real estate is not an easily ‘saleable’ investment, making it highly unfavorable on the liquidity scale. Even if you manage to sell it, there are huge transaction and maintenance costs, as well as the tax factor to be considered.

The housing prices may or may not become cheaper, but housing loans are slated to become less expensive, especially after the recent demonetization drive. Most of the banks are expected to cut their lending rates. So, while buying property will get cheaper, selling it for profit you expect may become a dream.

MF vs Direct Equity

Any investor who is ready to take the plunge in the market is often faced with this question – buy stocks/shares directly or invest in mutual funds? Direct equity is a high risk, high return investment option. It is subject to frequent price fluctuations due to market volatility and can result in complete erosion of capital in an adverse scenario. In order to buy and sell shares at the right market timing and reap profits, you also actively need to monitor the price movement and do thorough research. If you lack discipline or time to do so, and do not have an appetite for high risk then direct equity is not the option for you.

Mutual Funds

Mutual funds are a pool of funds collected from several investors to invest in securities such as stocks, bonds, money market instruments and similar assets. They are specifically designed from the perspective of diversifying your portfolio and catering to risk appetite of every kind. For instance, debt mutual funds give you steady returns, equity mutual funds give you a possibility of high returns and hybrid mutual funds (mix of debt and equity) which give you benefits of steady returns as well as capital appreciation. Since mutual funds invest in a basket of over 20-30 stocks, they do not make or break an investor`s portfolio owing to price movements of individual stocks.

Unlike gold or real estate, you don’t require much amount to invest in mutual fund – you can set up a Systematic Investment Plan (SIP) with a minimum investment of Rs500/- per month. This ensures that you are not burdened by your investments and you can still get superior returns on investment. Also, the other benefit is that if you wish to invest in 10 quality stocks and have a corpus of only Rs. 1000, you will not be able to buy all 10 (because of higher prices). Through a structured vehicle like mutual funds, you can easily buy a portfolio of 30-50 stocks with an investment as low as Rs. 1000.

Mutual funds are also inflation beating instruments, definitely a great advantage over FDs and PPFs. You can also buy or sell mutual funds easily, subject to entry and exit loads of the scheme. 

The core mantra of financial planning is that you keep a long-term horizon to optimize your returns without risking the safety of your investment or affecting the liquidity. Mutual funds meet all these criteria, making them the right fit into your portfolio.

ACTION PLAN FOR WEALTH GENERATION

Step 1 – Identification of Goals & Review current financial status.

Step 2-   Assign Priority to your Goals.

Step 3- Goal Less than 5 Years: Short Term Goal.

              Make Conservative Financial Plan for predictable returns.

              Invest in Debt Mutual Funds & conservative hybrid Plans.

              1-3% more Returns than FD Returns, Better Liquidity, Tax efficient 

Step 4- Goal More than 5 Years: Long Term Goal

              Make Smart Financial Plan for Rewarding returns

              Invest in Portfolio of Best Equity Funds

              2 times to 3 Times of FD Returns, Better Liquidity, Tax Efficient 

              Smart Asset Allocation by Funds Master to enhance returns & reduce risk

Step 5 –Review your portfolio once in a year.

Step 6-  Rebalance your portfolio if required.

Step 7-  Relax with complete peace of mind.

Let the money work harder for you rather than you keep working for money.

For Both Short Term & Long Term Goals, Mutual Funds are the best choice for you.

With Funds Masters, Smart investing & faster wealth creation is cake walk and just 1 Hr in a year is sufficient to make your investment &

fulfill all dreams and look after your loved one.

SIMPLE & EFFECTIVE FINANCIAL GUIDELINE FOR GREAT FUTURE

Emergency Fund: Always have 3-6 Months earning in liquid funds for urgent unforeseen events.

Health Insurance:

Health care cost is growing rapidly than earnings.

Health Care cost may derail all your aspirations & dreams.

Take health insurance if your employer does not provide you comprehensive health cover.

Life Insurance:

Take adequate amount of life insurance if you have dependents.

Always purchase Term Insurance.

Never club investment with insurance. You will get worst of both worlds if you club insurance with investment.

Insurance is not investment class.

Property Investment:

Don’t Purchase Property for Investment.

Buy your dream House to live happily with your beloved family.

But Do not invest in property as investment.

Property Prices saturate after a period of time, difficult to safe guard & less tax efficient.

Real State sector is loosely regulated and Fraudulent/ unlawful activities are dominant. 

RERA will take time to be effective.

Thousands of Investors have lost their life long savings by renowned builder.

Equity has potential to generate better returns than returns expected by property in long term. 

Gold:

Do not Buy Gold for Investment.

Buy Gold for use in social functions but not for investment.

The history of Equity MF has proved that Equity has generated better returns than Gold.

Equity has potential to generate better returns than Precious metals in long run. 

Gift your children Mutual Funds instead of Gold/Cash in Marriage.

Funds Masters Recommendations for Short Term Financial Planning

Safety of invested capital is more important than appreciation.

Do not invest in Equity Mutual funds for your short term goals.

Do not invest in long term debt Mutual Funds for short term Goals as these funds are sensitive to interest rates and not suitable for short term goals.

For money requirement up to 6 months, Liquid Funds or Ultra Short term debt funds are best.

For money requirement from 6 months to 18 months, low duration funds and money market funds are best suited.

For money requirement up to 18 months to 36 months Short term debt funds are suitable.

For money requirement from 36 months to 60 months, Dynamic asset allocation funds, Conservative Hybrid funds and Dynamic bond funds are suitable.

Funds Masters Recommendations for Long Term Financial Planning

Faster Pace of appreciation of invested capital is main aim of long term financial planning.

Equity Mutual funds are best suited for your long term goals and must be invested to fulfill your long term financial dreams.

Say No to traditional modes of investment ( FD, PF, PPF & others) for long term goals as Equity have potential to beat returns of traditional investment options by wide margin.

Say No to insurance for investment. Insurance is not an investment class. Always take adequate Term insurance plan for your insurance needs.

Avoid investing large lump sum money into equity MF. SIP is best mode for investing in Equity MFs.

Large lump sum investment should be done in 24-36 months in form of STP from Debt fund to Equity fund to avoid catching market peak.

Avoid investing in thematic funds as these funds are generally cyclical in nature and therefore not suitable for long term wealth creation.

Say No to Equity MF for non-negotiable financial needs of less than 5 years.

WISH YOU REWARDING WEALTH CREATION JOURNEY