When should you invest in mutual funds?

The future is uncertain. Predicting what might happen the next day, let alone the next month or year, is challenging. However, that doesn’t mean it has to be scary. Endless possibilities exist when you look ahead, which makes the future exciting.

The same logic is the reason why mutual funds are popular among investors. They prepare you for the future and ensure your financial health stays steady and strengthens with time. The SIP route to mutual fund investments is the best way to invest in mutual funds as you invest in all market conditions.

Is it safe to invest in mutual funds?

Traditional investment instruments promise security. It is the most significant benefit they can provide, ensuring investors at least receive whatever they invested. However, investment vehicles should do more than that. Earning returns is among investors’ top priorities, as it can help investors beat inflation and increase their financial health. Traditional investment instruments cannot always deliver inflation-beating returns, resulting in less portfolio value for investors.

With mutual funds, investors can earn decent returns. Since mutual funds are managed by professional fund managers who know the market in and out, they ensure investors’ money is invested correctly, and their investment objectives are met.

How to select the correct mutual fund?

Choosing a mutual fund scheme that aligns with your financial goals, like retirement, a child’s higher education/marriage, foreign trip preparation, etc., is best. For your long-term financial goals like retirement and higher education, consider investing in equity-linked funds as they endow you with inflation-beating returns over the long run.

However, for short-term goals with a time horizon of up to three years, where your fund requirement is urgent, you can consider investing in ultra-short-duration debt funds or liquid funds as they assure capital protection and satisfactory returns.

If you are a mid-risk appetite individual, then to meet your lifetime goals like retirement, you may even consider opting for hybrid mutual funds, i.e., a mix of debt and equity-linked funds. By opting for this fund, you may not just be able to earn higher returns than fixed-income securities but also preserve your capital.

Which is the best option to invest in a mutual fund – SIP or lumpsum?

Thumb rule of investing states that you must invest gradually over time to mitigate your crucial financial goals at distinct life stages. For instance, if you are salaried, consider opting for the SIP (Systematic Investment Plan) route, as it allows you to invest your surplus funds periodically in small instalments to meet your long-term financial goals.

However, if your income is irregular, consider opting for the lumpsum route to invest in equity funds. But if the market is volatile, it is recommended that you refrain from investing your lumpsum funds in equities. Instead, you must opt for debt mutual funds.

Mutual fund investment can assist you in achieving your crucial financial goals quickly if you consistently invest in the correct fund per your risk appetite and preference. The best time to begin with mutual fund investment is now, i.e., the earlier you start, the better you will be at forming a vast wealth over the long run.

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