Mutual funds are linked to financial markets, and allow the investor to invest across asset classes from equity and debt to gold. With various investment options that range from high risk and insecure to low risk and secure alongside short term and long term investment options, finding the right mutual fund to meet financial planning goals is easy and can be very rewarding too. Here’s what an investor needs to know to achieve his/her financial goals through a mutual fund investment.  


Understand the investment potential

When you, as an investor, step into financial planning whether for the short or long term, you need to understand your current financial position. This includes your current income, monthly expenses, current investment liabilities, loans and EMI payments as well as savings and investments. This will help you understand the money you have to invest in mutual funds as well as your time horizon to fulfil your personal financial goals.


Risk appetite

When you have a clear understanding of your investment potential, it will also become clear how much risk you are willing to undertake. Your investment potential is determined by the income level, age, liquidity and the time you have available to meet your financial goals. Based on this, you can determine the asset class that is best suited for your mutual fund investment needs. The age of 30 or below is ideal for a high-risk appetite as time and potential earnings help investors absorb losses. In contrast, when the investor gets closer to retirement age, he or she will want to invest in mutual fund with low risk and yet maximise the returns.           


Asset allocation

Investment in mutual funds can be personalised as per your financial goals. Asset allocation lets investors like you appropriate the investable surplus across different asset classes depending on long term and short term goals. The rule of thumb is that higher risk leads to greater potential reward. Invest in mutual funds based on equity, which can be more volatile in the short term, when looking at a long-term investment window. A 3-year or longer window will help the high-risk equity mutual fund recover from any market volatility. For short-term investment of less than 3 years, invest in mutual funds that are debt backed as the returns are secured, although the return may be lower than equity backed mutual funds.


With myriad options and a solution for most investment requirements, investors can use mutual funds to meet financial planning goals with ease. Investing in different asset classes can further reduce your risk. Ideally, investing in three or more diversified funds will provide your investment the required spread to meet your financial goals through mutual fund investment. Whereas you can invest in mutual funds via a variety of banks and non-banking financial institutions, try Bajaj Finserv. With the right advice based on your specific requirements, Bajaj Finserv’s mutual funds also come with high security standings that ensure the safety of your investment in the long run. To find out more, click here: