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ROLE OF MUTUAL FUNDS IN ACHIEVEING THE INVESTMENT GOALS

From starting a financial journey to potentially growing the wealth, Mutual Funds play a significant role in helping the investors to manage their risk as well as to achieve their financial goals over the long term. Mutual funds offer diversification or access to a wider variety of investments than an individual investor could afford to buy. There are economies of scale in investing with a group. Monthly contributions help the investor’s assets to grow. Funds are more liquid because they tend to be less volatile. Mutual funds help to encourage savings, as they provide attractive investment opportunities for the investors seeking long-term financial growth. By mobilizing investors’ savings towards long-term financial goals, Mutual funds encourage disciplined investments, which help to create a robust saving-culture, that is essential for overall economic growth. Thus, financial intermediation, development of capital markets and growth of Indian economy are universally based on Mutual Funds. Mutual Funds can be versatile investment vehicles that can be used for both short-term and long-term financial goals; providing one to choose the right types of funds that match the time horizon and risk tolerance, associated with each goal.

Mutual Funds seek to fulfill certain objectives of the unitholders – It is usually advised not to put all your apples in one basket as doing so can disproportionately increase the risk if a single apple is rotten, all the apples will get rotten. Mutual funds are inherently diversified. They diversify across securities, assets and even geography; hence the risk may be lowered. Some Mutual funds such as Money-market funds and liquid funds aim to protect capitals; however while they are relatively safer, they also possess lower returns. Certain Mutual Funds such as equity fund focus on growth to protect investments against inflation. These funds invest in stocks and have higher returns but also come with certain risks. A certain class of Mutual funds called ‘Equity-linked Savings Schemes’ (ELSS) or tax-saving funds also provide income-tax deductions up to Rs 1.5 lakh in a financial year in the old Income Tax regime. Thus, choosing the right Mutual Funds involves in understanding the investment goals, risk tolerance and time horizon. By researching on different funds, analyzing their performance and considering the investment strategies, one can get personalized investment recommendations, tailored to financial goals with risk appetite. Mutual funds offer flexibility to redeem the investments partially or in full, depending on the necessities. Whether one requires the funds for financial emergencies, a major purchase or any other personal goals, one can access the investments when required, providing valuable source of liquidity. 

Mutual funds and investment goals are inter-related to each other.  There are certain best possible ways which are helpful to achieve the financial goals. All investment-goals can be categorized into three broad groups – 

i) Short term goals (1 to 3 years) : For instance, going on a family vacation, buying a car etc.

ii) Medium term goals (3 to 5 years) : For instance, doing a short-term course on a certain subject for a certain time.

iii) Long term goals ( 6yrs. or more) :  For instance, buying a house in next 5 to 7 years. For long term purposes, equity funds are suitable.

iv) For any goals upto 12 months, it is better to invest in Liquid Funds since they are less volatile. Liquid funds can be a good option to create an emergency fund. 

v) For goals between 1 to 3 years, one can invest in short term debt funds.

vi) Hybrid funds are also more suited for medium-term goals since they have the potential to provide both capital appreciation and stability. For long term purposes, equity funds are suitable.

Thus investing in Mutual funds is one of the simplest ways to achieve the financial goals on time. But before investment, adequate time should be taken to go through various fund options. Taking the guidance of a professional financial advisor, help one to make the right investment decisions and plan the financial journey. However, one should follow the widely accepted principles in the investments through Mutual funds, to start as early as possible. The magic of compounding interest becomes more potent, as longer, one could stay invested. This essentially means that the earlier one invests, the smaller the principal one need to accumulate for significant wealth over time.