Setting Financial Goals with Mutual Funds

Dr. Nitya Sundar Nanda

A young individual embarking on their financial journey might have various options like opening a bank account, investing in fixed deposits (FDs), recurring deposits (RDs), or investing in stocks or gold. Rather than focusing on individual financial products like endowment plans, ULIPs, FDs, or gold, young folks need to view their investments through asset classes, including debt, equity, gold, real estate, etc. Mutual funds are a ‘pipe that connects the investor’ to a variety of asset classes ranging from equity and bonds to gold and international stocks. One can easily construct a diversified portfolio using mutual funds, and invest in different asset classes.

 Mutual funds easily enable sophisticated portfolio construction, making them an ideal choice for investors looking to achieve their financial goals effectively.

When talking of mutual funds, most investors recall the disclaimer “Mutual Funds are subject to market risks”. This makes MFs seem like a risky product. But the point is that market volatility, which investors are so wary of, is just one of the many risks investors can face with investment products. Market volatility can be smoothed out by a long holding period. But there is the risk of the entity vanishing with many unregulated products, and there is the risk of not being to sell in time with assets like real estate. Mutual funds do not carry these risks. They offer liquidity at a transparent price and are very well-regulated by the Securities and Exchange Board of India (SEBI), with the result that there’s been no ‘vanishing’ mutual fund while there are vanishing companies.

It can be highlighted here that the riskometer introduced by SEBI, now dynamically maps the risk of debt funds based on liquidity, interest rate, and credit risks. This empowers investors to make more informed decisions about them.  SEBI has proactively worked to eliminate fraud, improve disclosures, and reduce expenses for investors.

The mutual fund industry today caters to the needs of both first-time and sophisticated investors. With a plethora of 37 categories of Mutual Fund schemes after being simplified by SEBI, a first-time investor can set a goal for wealth maximisation. Investors can build a well-diversified and manageable portfolio by choosing one fund from select categories.