Investing in mutual funds is not that complicated anymore. You choose a scheme, complete all the pre-investment formalities, become KYC compliant, and can start investing using your mobile phone. Everything is simple and at the convenience of your fingertips. Also, since there is no entry load, investors do not have to pay any fees to the AMC for investing in mutual funds. They also offer diversification which makes them an ideal investment option for those who want to stay away from market volatility.
We have a few tips for you if you want to create wealth with mutual funds. If you wish to target any financial goal with mutual funds, these tips will definitely come in handy.
Here are 6 tips to wealth creation for mutual fund investors –
Financial planning is extremely important as investors need to plan their investments well beforehand so that allocating money to different mutual fund schemes as per their investment objective becomes simpler. Whether you are first time investor or a seasoned investor, it is always good to prepare in advance. If need be, do not shy away from consulting your financial advisor as they can help you make an informed investment decision.
Spread your portfolio across asset classes
Every mutual fund scheme has a different asset allocation strategy that complements its investment objective. For example, bluechip funds predominantly invest in large cap company stocks. Similarly, small cap funds mostly invest in small cap stock. Then there are sectoral/thematic funds that invest only in companies belonging to a certain sector like real estate, banking, etc. Investors must ensure that they choose mutual funds that carry a well-diversified portfolio and whose investment objective aligns with that of theirs. They can also consider multi-cap funds that invest in companies across market capitalizations.
Reduce their taxable income with ELSS
Investors must be aware that it is possible for them to save up to Rs. 46,800 in taxes and bring down their tax liability by investing up to Rs 1.5 Lacs every fiscal year in a market linked equity scheme like ELSS (Equity Linked Savings Scheme). ELSS is a mutual fund scheme that comes with a tax benefit and also allows investors to earn long term capital appreciation.
Build a portfolio for long term wealth creation
If you ask any mutual fund advisor, they will suggest you invest for the long haul. Mutual fund schemes are able to perform to their fullest potential only when remained invested for a longer duration. Thus, any long term financial goals like retirement planning, planning for securing your child’s financial future, or building a corpus for their higher education can be met through long term mutual fund investing.
Consider SIP over lumpsum investing
One of the easiest ways to create long term wealth with mutual funds is by opting for the Systematic Investment Plan. SIP is a simple and effective way to save and invest a fixed sum periodically in mutual funds. Investors can start with a monthly SIP of Rs 500 and then gradually increase this amount as they start gaining confidence in the scheme and wealth creation with mutual funds.
Use SIP calculator
When planning mutual fund investments, investors should make use of the SIP calculator, a free online tool that any layman can use. The SIP calculator computes complex calculations and produces results in a jiffy. Investors can use this calculator to determine the total returns which they can earn through systematic long term SIP investing.