Mutual funds are one of the best options for long-term financial planning. It is not necessary for investors to have a large sum of money to make their investments profitable. Investing in mutual funds through systematic investment plans (SIPs) is a great way to invest small amounts on a regular basis.
Through mutual funds, you can accumulate Rs 1 crore by following the 15*15*15 rule. A 15-year investment of Rs 15,000 per month in a fund generating 15% returns would result in one accumulating Rs 1 crore.
Above all, financial discipline plays a major role in accumulating a sum of Rs 1 crore by investing regularly. For more information on investment assets, you can rely on Future Value, a pool of financial experts that can guide you through this and help you in your investment journey.
What specific risks are associated with mutual funds?
There are specific risks associated with mutual funds which one must know as an investor:
Market Volatility risk: The fluctuation in the market, i.e., the poor market performance which leads to a loss in investment.
E.g.: inflation, recession, interest rate fluctuations, political unrest, natural disasters, etc.
Liquidity risk: Liquidity risk is the risk of not being able to withdraw your investment at a time of need, or you may have to incur a loss while redeeming an investment.
E.g.: ELSS, the tax-saving equity mutual fund, comes with a 3-years Lock-in period. It’s liquidity risk.
Concentration risk: There is a concentration risk when you have high exposure to one asset or sector or theme in particular. In other words, if you have a portfolio that is heavily based on equity schemes, your portfolio is considered high-risk.
Interest Rate Risk: The Reserve Bank of India revises interest rates from time to time which impacts the price of a security. The value of a financial instrument is therefore affected by changes in interest rates.
Credit Risk: It refers to a risk associated with the borrower’s or issuer’s inability to pay interest. According to certain criteria, credit rating agencies rate an asset. An issuer or borrower’s credit rating indicates their ability to pay interest and principal. A high rating implies low chances of default and vice versa.
For more information on investment assets, you can rely on Future Value, a pool of financial experts that can guide you through this and help you in your investment journey.