Day-in and day-out, you work tirelessly to earn and save a little bit extra, so that you can not only meet your expenses but also set aside something for a rainy day. But, simply putting away your hard-earned money in a saving account might not be doing you a world of good. Instead, consider avenues that can give more efficient returns. Here are some things that you need to keep in mind before choosing an investment avenue and making it work.
- Diversify to Reduce Risk
Anyone with sound financial knowledge will tell you that it is not wise to put all your eggs in the same basket. This means that you should choose an investment product that diversifies by investing smaller amounts across avenues. This helps balance returns in case a particular investment is not performing. Equity mutual funds, for example, offer diversification by investing in stocks of various companies, thereby spreading the risk.
- Liquidity
Liquidity means the ability to convert an asset into cash when the need arises. Let us take for example a real estate asset. This asset might be worth a lot, but when you are in urgent need of funds, it can prove to be a hindrance as it is highly ill-liquid. It can take anything from weeks to months to sell a property. Moreover, you cannot part-sell it.
An investment channel that lets you draw funds from it quickly, or offer high liquidity, should be preferred. For instance, liquid and ultra-short fund funds offer similar liquidity like a bank FD, but with a potential for higher returns (Bank FD offer assured returns while there is no assurance or guarantee for performance of mutual funds). Such funds hold good while investing for short to mid-term.
- Professional Management
Wouldn’t it be nice to spend your free time doing things that you love, rather than in managing your investments? Does an investment avenue, that actively manages your money to give you the reasonable risk adjusted returns over long term, sound too good to be true?
Well, some products do exactly that, and mutual funds is a fitting example. These are professionally managed by a team of experts having the requisite qualifications and experience. These fund managers closely monitor the markets and leverage opportunities for capital appreciation over long term.
- Low Capital Requirement
Most investors begin with small amounts and gradually increase when they get comfortable, or when they start saving more. They prefer avenues that can be tested with small investments. This is where mutual funds score over other avenues. One can start investing in a mutual fund with as little as Rs. 500, making it an ideal avenue to start. All you need is the KYC documents.
So, these were some of the things that should be kept in mind while looking for an investment vehicle and making your money work for you.
IDFC Mutual Fund offers you a wide choice of products that can help you fulfil your financial goals. Choose from equity funds, debt funds, tax-saving funds, hybrid funds and long-term funds among others, and start your journey towards financial success. Visit our page to find out more. Subscribe to our page to receive regular investment insights.