Keywords: financial planning, equity fund, equity mutual funds, what is equity funds, mutual funds, mutual fund investment, invest in mutual funds, types of mutual funds, invest in mutual fund online
The first paycheck invites several additions to your life. These include a search for vacation sites, expansion in the shopping list, purchase of new electronic gadgets, etc. At times, you may also be exposed to various personal finance tips, which you may blindly believe. Note that not all the recommendations are practical and beneficial. Here are a few financial planning myths busted.
Myth no. 1: Investing means saving money in saving bank account
Let’s face this. You keep dipping into your savings account for distinct needs – like electricity bill payments, EMI, and credit card due to repayments, premium payments, etc. Expenditures have the habit of guzzling up all your readily available funds – and a savings account is the very first instrument that comes to mind.
Even though you are one of the rarest souls that keep funds in fixed deposits and do not break them – can this be termed an investment? With inflation higher than the FD returns, effectively you are exchanging real returns for capital safety. For instance, the current FD rate is around 4-5 percent for most banks and consumer inflation near to 6 percent. By opting for FD, you are eroding your buying power. Thus, instead of savings or fixed deposit accounts, invest in mutual funds to meet your goals as they have the potential to provide inflation-beating returns.
Just as you may have distinct financial goals, there are different types of mutual funds like equity mutual funds, debt mutual funds etc. to help you attain different goals. May it be a long-term goal of forming a retirement corpus or creating higher education corpus for children or short-term goals of saving taxes or upgrading to a better car – all can be met by selecting the right mutual fund as per your preference and risk appetite.
A financial advisor is the key to saving a lot of your money that you’ve been spending on the resources that you don’t need.
Myth no. 2: Retirement planning before 50s is very early
Many of you often delay your retirement plans for immediate goals like accumulating corpus for traveling abroad, buying a new car etc. You do so because you think retirement planning to be something, which you can do in your later working years. Here, what you miss understanding is early investment in equity mutual funds will allow you to get the benefit of compounding, which in turn can help in forming a bigger corpus for retirement at smaller contributions. In case if you are a conservative investor, you may have this question as – what is an equity fund?
Equity mutual funds invest majorly in stocks of different companies to yield returns. As an asset class, equities have the potential to beat fixed income assets and inflation over the long term by a huge margin. Thus, for forming your post retirement corpus, equity mutual funds are the best choice.
For example, if a 25-year-old starts investing Rs 5,000 every month at an assumed rate of 12 percent, he would form a post retirement corpus equaling Rs 3.22 crore by the time he reaches 60 years of age. However, if he begins his investment late at around 50, he will need to make a monthly contribution of Rs 1.40 lakh to generate the same corpus of Rs 3.22 crore.
Thus, postponing your retirement planning to later working years not only propels you to make higher monthly contributions but also puts a lot of stress on your other financial goals and lifestyle expenditures in the later phases of life.
Myth no. 3: You need a huge amount to start your mutual fund investment journey
Whether you invest in mutual funds online or offline, the minimum initial investment required to begin your mutual fund generally is Rs 5,000 with the minimal additional amount being Rs 1,000. In the case of SIPs, the minimum investment amount for mutual funds generally starts from Rs 500. Thus, you can begin with mutual fund investment with small investible surpluses also without the need to wait for the accumulation of a huge fund.
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