Posts Tagged: ‘ELSS’

Planning Your Finances With Mutual Funds

August 22, 2014 Posted by admin

When planning your finances it is important to be very clear as to what your goals are. Once you have them clearly defined it becomes easier to select investment options based on your needs. The next step is to have all the knowledge possible about where you are investing your money. Knowledge equals power in the financial world, and the more you have, the better off you will be.

There are a number of avenues to invest your money in, but one of the largest growing financial products in India is mutual funds. Most Indian’s are very conservative in terms of the investments they make. Culturally we prefer safety to risk when it comes to our money. Therefore, mutual funds offer us an excellent avenue as they reduce the risk factor for individual investors while maintain either a dynamic or secure return rate, depending on how the fund’s assets have been allocated.

One of the best ways to invest into mutual funds is through the systematic investment plan or the SIP. When investing through an SIP you decide on how much you wish to invest every month in a particular fund and also for how long. Let as assume that you wish to invest Rs. 5000 every month for 3 years. Then every month that money will be deposited into the fund from your account. The advantage of this is that if the fund is not doing well and the cost per unit or NAV drops, then for the same amount invested, you are receiving more units, which will increase your return through volume. Whereas if the fund is doing well and the NAV increases then, even though you purchase fewer funds per instalments, your returns at least are high.

Thus an SIP helps to make the best out of any situation that the market creates for it. Also, once all the initial paperwork is completed it is hassle-free as the amount is simply removed from your account every month and deposited into the fund at regular intervals. However, simply because we have mentioned the many advantages does not mean that it is the ideal investment avenue for you.

Sometimes it is necessary to invest in funds that definitely come with a higher risk like ELSS funds or equity linked saving schemes. These funds invest their capital solely into the equity of companies thus generating an extremely dynamic rate of return. However these funds stand at a higher risk as the equity market is far more volatile and hence riskier than investing in government bonds and so forth. In the end, you must always pick the investment route that matches your needs and helps you to achieve your financial goals.