Mutual funds have always been a moderately profitable and popular means of investment. As opposed to direct investment in shares or stocks, mutual funds have been shown to be easier and less risky.
Presented below are different options of smartly investing in mutual funds.
- Mutual funds as a means of short-term investment
Debt mutual funds are investment instruments which are designed for short time periods. Such investments are perfect during times of emergency. They are of great help when you suddenly require money, as would be in case of large down payment for car purchase, or medical emergency, etc.
As Debt mutual fund investments are for a short duration, investors have to make sure that their investment does not fall prey to market volatility. If your investment gets eaten up by unpredictable markets and loses “real numbers-value”, then it may not be that useful during times of emergency. Hence, investors should go for Debt Funds like Ultra Short Term Funds and Short Term Funds.
- Mutual funds as a means of mid-term investment
Mid-term mutual fund investments are ideal for duration of 1 to 3 years. It is a great option if you wish to save for launch of a new business or a start-up. Many also believe that they can be a helpful instrument if you are planning to purchase real estate or property.
With mid-term mutual funds, investors have to find a fine balance between risk and growth. This means that investors need to maximize gain in capital to the optimal level while making sure that the level of risk is moderate as the investment period is still not that long. Thus, you may continue with debt funds, or choose monthly investments or SIP/ Systematic Investment Plan in Balanced Funds. SIP is a particularly good option of investment in balanced funds for salaried individuals who have no understanding of the way equity markets work.
- Mutual funds as a means of long-term investment
Investment in mutual fund schemes for a period of over 5 years is considered as a long-term investment. Long-term investment by its very name indicates that it is the ideal option for those planning and investing for the future. Long term investments can include saving for child’s education, for health problems in old age, and for life after retirement, etc.
As the investment in equity mutual fund is for a long period, investors can afford to take extra risk against volatile markets so as to make as much profits or capital gains as possible. In this case, the best option would be schemes with equity funds (stocks of companies) in its portfolio.