Browse Tag: mutualfunds

Plan your wealth & retirement with Mutual Funds – WealthSamurai

Plan your wealth & retirement with Mutual Funds

 

 

mutual fund investments

A young techie sent me a message “I am 24 years old and I need help with my retirement planning . Can you help me out?”.

Amazing, isn’t it? Hardly around a decade ago it was impossible for people like us – early into the professional life to talk about retirement planning and personal finance. The scenario has changed completely. Now a days I see a lot of young professionals lined up seeking early retirement advice and discuss on the ways how they can accumulate wealth. Till a few years ago, these kind of questions were the subject of discussion for people in their late 40s and 50s

The reason behind this is the younger generation is much more aware about the surroundings. Youngsters are more worried about the retirement and investments. They indeed should be as

  • There is no provision of company funded pension schemes in private organizations and even in most of the Government organizations now.
  • It’s unlikely that the kids / family will help the current generation during their retirement times.  Hence they can not even think of relying on them during their golden years.
  • Due to advancement in medical facilities, people are living longer now. This means they have to provide for themselves for few more years.
  • The cost of living, including the healthcare costs are on the rise and one needs money to fund the living.

So how to get around and plan for a decent retirement for yourself? Rather I should frame this question as “How best mutual funds can be used to fund your retirement plan effectively?”

 

investment in mutual fund

A lot of historical data which is available at hand at many online portals / financial magazines indicates that the returns from a small amount invested religiously over many years in equity mutual funds have always beaten the inflation by a huge margin.

What does this mean? When you are investing for retirement you have to make sure that your earnings are not affected by inflation. Say for example, money in savings bank account as of today earns around 3% as interest per year. Retail inflation usually hovers at around 4%-6%. This effectively means that your money is eroding its value when you keep it in savings account.

When you are investing for a long term or a goal like retirement, you must ensure that you go full throttle to increase the gap between inflation and the returns you generate from your investments.

As per the historical data, over last 10 years

  • Large Cap mutual funds category has generated an average of around 14% returns per year
  • Diversified mutual funds category has generated  an average of  around 17% returns per year
  • Midcap / small cap mutual funds category has generated  an average of around 20% returns per year

So we do have some learning from the statistics above. To keep our earnings well above the inflation – we must tap the potential of Equity Mutual Funds. Right? It is extremely important to to earn well above inflation to save our money from eroding its value.

Now coming back to Mutual Funds, all one has to do is to select a mutual fund which fits in one’s risk taking appetite and set aside a sum every month to invest in it. Do it religiously for eternity – you will certainly hit the jackpot. If you are young, starting your career and love to take risks, pick a more aggressive small cap / mid cap combination. Choose the best funds in the category and you are done. Only catch is you have to invest in it month on month for many years. If you keep on investing and do not withdraw your earnings, you are set for your retirement corpus. One more things, invest a sizable amount. My suggestion is you must aim to invest 20%-30% of your take home income every month.

If you are conservative by nature, pick any top rated large cap equity mutual fund and hang on with it till you reach your retirement age.

 

benefits of mutual funds

Believe me, there are no shortcuts of becoming rich. One has to invest diligently over a long period of time and once you give exposure of time to your equity mutual funds investments none can stop you from acquiring a decent retirement corpus. You will be amazed to see the power of compounding.

One word of caution – do not get disturbed or distracted with short term fluctuation in markets. Every few years there will be sharp down turns which can be used to park more funds and earn better during the upcycles.

If you are young, ready to start – I am reachable at wealthsamurai at gmail.com to help you out.

More Reads:
Want to enter equity markets? Index based ETF funds are the safest bet
6 Sins people commit when computing retirement corpus

Happy Investing !!!

 

Why you must Start investing in Equity markets through mutual funds

Why you must Start investing in Equity markets through mutual funds

Most of us are scared of the equity markets. We have some or the other excuse NOT to start investments in equity. For some, it’s risky, for some it’s too technical. Some feel that it’s too complex to understand and they are not qualified enough to understand the nitty gritties of the market ups and downs.

 

mutual fund investments

 

If you have never invested in mutual funds, you are at the right place. This post briefs you on how and why you should invest in mutual funds for various financial goals and milestones in your life.

Search for higher returns on investments make people to look out for investments in equity markets. Investment in equity markets bring “high risk” to the table. Everyone can not be an equity expert to understand the technicalities of the market swings, when to enter the market or when to exit the market. The loss of the principal amount is the biggest threat which keeps most of the investors away from the equity markets.

An equity Mutual Fund is the best tool for common investors to enter into equity markets. It helps them to reduce the risk, earn higher returns and since they are professionally managed, they play fair game.

By definition, “A mutual fund collects money from individual investors and invests the money on their behalf in the stock market, bonds, government securities etc. and it charges a small fees to manage the investment.”

 

investment in mutual fund

 

I am listing down 5 compelling reasons on why one should invest in mutual funds.

 

  1. Equity Mutual funds give higher returns :
    Ultimately every investor aims for a higher return on his/her investments. Equity mutual funds have given much higher returns in the past if you compare it with the fixed income instruments like fixed deposits / recurring deposits / bonds etc. Mutual funds have controlled exposure to the equity markets which in turn gives higher returns to the investors. If you see the returns from equity mutual funds over the last 15 years, most of the funds have given returns around 14%-15% compounded annually. This is much higher than the inflation figures

  2. Mutual funds are professionally managed:
    Mutual funds are professionally managed by qualified and trained fund managers usually picked up from top schools.  Fund manager’s daily job is to study, track the stock markets and tweak the fund’s composition accordingly. Also all the mutual funds in India are governed by SEBI which is a government agency which is governed by the government.

  3. Mutual funds can make you a disciplined investor:
    Mutual funds have amazing concepts of Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and Systematic Withdrawal plan (SWP). Armed with these plans, you need not have to bother about logging into your account every month and buy fuds, or switch funds. You can set up SIP, STP or SWP and sit peacefully while mutual funds work with your investments

  4. Mutual funds have greater liquidity:
    Unlike some investments like PPF, Government Bonds, mutual funds have an excellent liquidity. Except ELSS – Equity Linked Saving Scheme mutual funds (which have a lock in for 3 years), equity linked mutual funds can be sold and redeemed within 3 working days. Liquid mutual funds can be sold and redeemed in 1 working day. Thus one does not have to worry about liquidity related concerned when he is investing in mutual funds.

  5. Equity mutual funds are highly customizable:
    Equity mutual funds comes in various shapes and sizes. There are diversified funds, thematic funds, sector funds, large cap funds, small cap funds, mid cap funds, index funds, tax saving funds, arbitrage funds and so on. You can chose funds as per your choice and investment horizon. Mutual funds are not rigid like Government bonds or PPF scheme where you do not have right to alter the composition. Also the switch facility from one mutual fund to other givers it more flexibility.

  6. Mutual funds provide you ease of investment:
    Mutual funds are so convenient. No need to stand in long queues to invest your money or no need to do loads of paperwork to park your money. A simple online account can work for you. Usually one can approach their bank to open an online trading account through which mutual funds can be bought and sold by merely clicking mouse.

 

benefits of mutual funds

 

Looking at the historical data, there is no denial that equity mutual funds gives you much better bang for your money. The returns are much higher than the traditional investment avenues. If you want to get rid of earn-save-spend cycle, you have to look for professionally managed schemes which gives you higher returns.

Look no further, make a good portfolio of mutual funds to get better returns and invest money for your future retirement and goal based investment needs.

 

Happy Investing !!!