Mutual funds are gradually becoming a preferred investment avenue. Mutual Funds offer capital appreciation and diversification and help in building wealth in a disciplined and sustained manner.
Here are some tips on how you can choose the combination of funds based on financial goals, investment horizon and risk appetite.
- Maintain Liquidity
Maintaining savings as cash or near cash is advisable. It works as an emergency corpus and helps one tide over situations such as sudden job loss or medical contingency. Most portfolios warrant an emergency corpus that can support a family’s expenses for at least 2-3 months. You can recommend liquid funds to park such savings.
Liquid funds invest in debt and money market securities with a maturity up to 91 days and have the potential to offer better returns than a bank savings account. To add to the convenience, one can place redemption request online, and the proceeds are generally credited to the client’s linked bank account within T+1 day.
- Growth and Capital Appreciation
If the goal is capital appreciation and wealth creation for long-term goals such as children’s higher education and wedding, or retirement, equity mutual funds can be recommended. These hold an edge over others as they have the potential to deliver inflation adjusted returns over the long term.
At times, investors shy away from equities because of the volatility associated with it. For such clients, you can recommend the Systematic Investment Planning (SIP) route as it helps average out the risks in the long term and helps build wealth in a disciplined manner.
- ELSS for Tax-Savings
Saving tax is one of the many benefits of investing. Equity-linked savings scheme or ELSS can be ideal vehicles to save tax and bring down tax-liability. Investments made up to Rs. 1.5 lakh in a fiscal year is exempted from taxation under section 80C of the Income Tax Act 1961.
Investing in ELSS also brings other benefits. Among the several tax saving products available in the market, ELSS has the shortest lock-in period (3 years) and being equity-linked, have the potential to deliver higher returns in the longterm.
- Hybrid Funds for Risk Management
An ideal portfolio is one that balances risk and rewards. Investments in mutual funds are subject to market risks, and volatility. However, this can be limited with funds having a debt component. This is where hybrid funds play a crucial role. These funds invest a certain portion in equity and the rest in debt and can give your client’s portfolio the much-needed cushion against market swings.
With the right mix of mutual funds, your clients can achieve their short and longterm goals within the desired time frame. IDFC Mutual Fund offers an array of funds to help your clients address their life goals.
Subscribe to our page for regular insights on personal finance and investment.