If your financial goals are more than 5 years 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”. Let us discuss key ideas for wealth creation in Long Term wealth creation through equity Mutual funds.

Clarity of goals: You need to be clear if you have short-term goals or long-term goals in mind as the plan of action for both will be different. If you are planning for short-term investments, then the emphasis usually has to be on safety & liquidity of capital and therefore liquid funds and short-term debt funds are best suited. In case of long-term goals, Equity investment is most suitable investment option.

The three-step approach: When you decide to invest in Mutual Funds, you must first set your financial goals. Make sure that you follow a practical approach while setting your goals. Then do a thorough research and decide on which are the feasible Mutual Funds in which you might invest. Finally, invest in a few Mutual Funds. Generally 3-5 Equity MFs are sufficient for your long term financial needs.

Invest in equity Mutual funds: Those who wish to invest for long-term potential benefits may opt for equity funds. When you invest in equity funds, you have to wait with patience as equity mutual funds carry high fluctuations. Market fluctuations are inherent nature of equity MF and therefore stay calm and stay invested for getting good returns from equity mutual funds.

Focus on the entire market cycle: Your objective should be to focus on the entire market cycle. When the markets are down, you may focus on buying more units. If you exit the market during the slump, you may lose out on the opportunity to grab more units.

Rework your investment commitment: When you start getting the returns from the investment, your money usually begins to grow. As your savings increase, you need to rework on your investment plan. You may try and increase the money that you invest in the Mutual Funds as soon as your savings begin to increase. This approach may help you earn more money than you had planned to when you sketched out your long-term investment goal.

Start young and invest more: For getting maximum potential benefits from Mutual Funds in the long run, it is considered wise if you start young. Start investing whatever small amount you have at a young age, so that you may get potential benefits in the long run. Also, try not to stick to small amounts. You must get into the habit of investing more money as and when it is possible. This dual approach will help you achieve your long-term financial goals easily.

You may opt for growth than dividend: When you make the investments, you have two options to choose from that is growth and dividend. Dividend involves withdrawal and the compounding effect is reduced. The growth option will give you the compounding benefit.

BENEFIT OF EQUITY MUTAUL FUNDS OVER DIRECT EQUITY INVESTMENT

Professional Management

Imagine you want to build a house. Even though you pay for everything, you rely on the expertise of professional architect, builder and technicians to build your house to the perfection. When it comes to money, wouldn’t expertise matter for building wealth? AMCs set investment objectives for schemes and appoint experienced and expert professionals to invest your money in equity. Fund managers spend quality time learning about the past and researching about the future performance of companies they invest your money in.

Portfolio Diversification

You get an exposure to various stocks when you are invested in equity mutual fund schemes. Investments as small as Rs. 500/- in mutual fund scheme allow you to make a diversified portfolio. This is simply, putting eggs in different baskets. Portfolio diversification helps to reduce risk which means you are less likely to lose money on your investments. Compared to direct investments in stocks, equity mutual fund schemes are affordable yet diversified models of investing.

Liquidity

Equity mutual fund schemes are liquid. They offer you an opportunity to redeem your investments at any time (Except for Equity Linked Saving Schemes-‘ELSS’ which has a lock in period of 3 years). That means you can redeem all your investments in the time of need or at a Net Asset Value (NAV) higher than NAV at the time of purchase. You can even invest more in equity mutual fund schemes during the market fall to buy units at lower NAV. Such liberty of investing and redeeming gives you better control over your investments.

Systematic/ Regular investments

Equity mutual fund schemes avail you a facility to invest small sums at regular intervals through systematic investment plans (SIP). SIP makes it simpler for the beginners to invest in equity mutual fund schemes. These small sums that you invest regularly are invested to buy stocks. This also develops a regular habit of investing which is useful in long term wealth creation.

Tax benefits

While investing through ELSS (Equity linked saving scheme) funds one can avail tax benefits. Investing lump-sum for 3 years lock-in period will help you get a tax deduction in the current financial year for up to Rs 1.5 lakh under section 80C of the Income Tax Act 1961. The schemes only have least lock-in as compared to other tax planning avenues like 5year -FDs, PPF, NPS, etc. They also tend to give much higher returns when compared to other tax-saving financial instruments. However, the returns are market linked and not guaranteed.

Easy on pocket: Anyone and everyone can invest in equity mutual fund through SIP mode. One can start investing with just Rs 500 a month. A SIP allows regular periodic investments through ECS (Electronic Clearing Service) process where money gets automatically deducted from your bank account every month at a predetermined date.

Capital appreciation: One of the primary benefits of investing in equity mutual fund is to get capital appreciation benefit. It is one of the financial instruments which can give you high inflation beating returns. If there is an increase in stock prices, it would reflect in appreciation in the invested money. One can accumulate good amount of wealth over a period of time.

Financial goal-oriented funds: If you have long-term financial goals, equity mutual fund can be one of the best vehicles to achieve the goal. The funds are categorized into large-cap, mid-cap, small-cap, etc. and accordingly the returns vary from fund to fund. The higher the risk associated, the more you have chances of getting higher returns to achieve your target amount. 

GOLDEN RULES 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.