Having a defined set of goals may actually help you in making the right investment decision.
Anyone who seeks capital appreciation through investments in equity instruments should try and have a long term investment horizon. But before making an investment in any scheme, investors are expected to make financial planning. Financial planning is essential for anyone who wishes to be successful with investing. That’s because it teaches you to focus on your short term and long term goals. Having a defined set of goals may actually help you in making the right investment decision.
Young individuals actually have the opportunity of accumulating wealth, if you start investing early. Because they are young, time is their best friend. A lot of people are unaware about that fact that if they start investing early in their life, they might actually be able to build a decent corpus in the long run.
It all boils down to where and how much you want to invest in order to get closer to your ultimate financial goal. How much you should invest is something that only you can determine keeping in mind your age, income, existing liabilities, etc. But where you should invest may depend on your risk appetite. If you are someone who is young and keen on giving their investment portfolio an aggressive approach, you may consider investing in mutual funds.
What are mutual funds?
Mutual funds are a medium for pooling money from investors sharing a common investment objective. Fund houses who own these mutual funds invest on the behalf of such investors across multiple money market instruments like equity, debt, corporate securities, government bonds, certificate of deposits, etc. Mutual fund investors are allotted mutual fund units in quantum with the investment amount and depending on the fund’s existing net asset value (NAV). The performance of a mutual fund may depend on the performance of its underlying assets.
Mutual funds are supposed to carry a diversified portfolio and also give investors an opportunity to invest across multiple sectors/industries through one single investment. The performance of a mutual fund depends on the performance of its underlying assets.
Mutual funds offers multiple payment option for investors
Mutual fund houses generally offer two investment options for those seeking investment in mutual fund schemes. The first option is making a lumpsum investment. Lumpusm investment is a traditional method for making an investment in mutual funds. In lumpsum payment option, a mutual fund investor pays the entire investment amount right at the beginning of the investment cycle. Investors get allotted more units in quantum with the investment amount.
The other option to make an investment in mutual funds is by starting a mutual fund SIP.
A Systematic Investment Plan or SIP is an easy and hassle free way to make an investment in mutual funds. With SIP all one has to do is inform their bank following which every month on a fixed date a predetermined amount is debited from your savings account and electronically transferred to the mutual fund.
How will young investors benefit from SIP?
Investing in mutual funds through SIP has its own perks, especially if you are a young investor. These are some of the ways young investors may benefit from SIP investments:
Invest small amounts at regular intervals: If you have recently started your professional career and wondering if you need a large surplus in hand to make an investment in a mutual fund, you don’t have to worry. With SIP you can start investing with smaller amounts that you are comfortable with. You can decide on how much you are willing to invest at regular intervals without burning a hole in your pocket.
Inculcate the discipline of investing regularly: Young investors are more focused on spending rather than saving. They are fascinated with shopping, fine dining and other worldly pleasures which makes them turn a blind eye on the importance of saving and investing. But when you start a mutual fund SIP, the money is automatically debited from their account every month and electronically transferred to the mutual fund. This way, they do not have to worry about investing. This way, an SIP holds the power of inculcating the habit of saving regularly.
Benefit from the power of compounding: Those who start investing early in a mutual fund SIP may even benefit from compounding. Compounding has the potential of turning small SIP amounts in large corpuses. Also if you are starting early, continue investing in mutual funds through SIP for the long run, thanks to compounding you may be able to build a decent corpus.
These are some of the ways young investors may be able to benefit from SIP investment if they start early in their career. When you start early, time is your friend and this is the moment to seize the investment opportunity so that you are able to attain financial freedom in near future.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
Parag Nesarikar
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