Mutual Fund – Need of Financial Plan

4 mins read
by Angel One

Why is financial planning necessary

A solid financial strategy is one that provides the greatest protection in the case of an unanticipated disaster or aids you in achieving your short and long-term objectives via prudent investing. However, many people still choose to follow the traditional financial strategies that have been handed down from generation to generation. Savings accounts and bank deposits are regarded to be safer investments, but gold is considered a safe haven and real estate has emotional value. But what we don’t recognize is whether or not these selections are assisting us in achieving our objectives.

Mutual funds, on the other hand, are proving to be an appealing vehicle for wealth development, with a variety of possibilities to achieve the necessary balance of liquidity and growth. Every investor has their own set of objectives, risk tolerance, and investment time horizon. Because each mutual fund scheme is distinct and caters to a certain risk profile, mutual fund investments give extended advantages of satisfying these criteria via their many product categories with the freedom of picking. SEBI, India’s mutual fund regulator, has announced the classification and rationalization of mutual fund schemes, ensuring transparency for investors in terms of the scheme’s investment goal, asset allocation, and risk level. This will assist investors in understanding scheme categorization and objectives, making it easier for them to pick a plan that meets their short- and long-term needs. Investing in mutual funds is a good idea since it provides diversity.

The investment is diversified among a variety of asset types, lowering risk and increasing profits. It is professionally managed by fund managers with investing expertise, allowing you to spend less time and energy following the markets. Debt funds are a better alternative than fixed deposits for investors with a low-risk appetite since their returns are greater than fixed income such as fixed deposits or PPF. Investors who are looking for a more aggressive approach to investing in stocks can explore mutual funds. This will assist to mitigate risk while also providing strong inflation-beating returns and cheap transaction costs. The most common fear people have is that they will lose money in mutual funds, but it is important to understand that there are alternatives to FDs where their money will be safe, such as liquid funds or short term funds, which invest in money market instruments or bonds and provide returns that are at least as good as FDs with the added benefit of liquidity. Investors should also be aware of common misconceptions about mutual fund investments, such as the belief that previous performance predicts future returns, that top-rated funds guarantee the highest returns, and that mutual fund investing is reserved for large investors. These misunderstandings must be dispelled in order for people to feel comfortable using mutual funds. The Association of Mutual Funds in India (AMFI), which initiated the SIP Sahi Hai campaign to raise investor awareness, is one of the numerous initiatives taking place.

Wrapping Up

It is impossible to overestimate the value of mutual funds as an investment option. It is important to include in one’s financial strategy since it aids in the creation of an inflation-adjusted corpus. Double-digit risk-free returns are no longer possible, lower interest rates are set to stay, and we don’t expect sovereign-linked products to provide significant returns in the foreseeable future. EPFO’s decision to allocate money to equities is more evidence of this trend. So, if you’re seeking a long-term investment that can provide double-digit returns, equities or a mutual fund is the solution for you.

Frequently Asked Questions (FAQs)

Q. What is the financial planning procedure?

Financial planning is an ongoing and dynamic activity, and your financial situation is unlikely to stay constant throughout your life. You should review your financial choices on a regular basis since changing personal, economic, and societal variables will force you to adjust your decisions to match your new circumstances.

Q. Is financial planning and investing the same thing?

The main distinction between financial and investment planning is the specific area of concentration. While financial planning is the overarching framework, investment planning is the specifics of putting the strategy into action.

Q. What is the impact of financial preparation on your future?

Financial planning assists you in appropriately monitoring and growing your source of revenue. It allows you to put your money to work for you. It helps you to double your money so that you may use it when you need it, whether it’s in the short, mid, or long term.