Strategies to build wealth with mutual funds in 2023
Building wealth in today’s world is everyone’s dream. If you are planning to invest for long-term financial goals, then equity mutual funds are the best option to opt for as they have and can outperform many other asset classes like gold, fixed deposits (FDs), etc., over a long period.
However, equity mutual funds can be unpredictable in a short duration. But if you remain invested for longer, it delivers good returns.
There are many strategies to build wealth, but there’s no fixed formula for it.
Steps to create wealth by investing through mutual funds
1. Define goals and horizons
When you want to create wealth, always set an achievable target and time horizon. This process will make your investment journey realistic and manageable.
Everyone has financial goals such as retirement, a child’s higher education, a house, etc. If we set a target amount for each goal and the time to achieve them, then the process of wealth creation will become effortless.
Your financial goals should be S.M.A.R.T., i.e. specific, measurable, achievable, realistic, and time-bound.
2. Invest as per risk appetite
Calculate your risk appetite using a questionnaire; many are available on the internet. See under which category you fall, whether it is a high risk, average risk, low risk, etc.
Then accordingly, choose your asset class to invest in.
Don’t fall for attractive or high returns; remember, high returns come with high risk. Every mutual fund serves different purposes and has different risks that can be measured.
Invest in High Dividend Mutual Funds
3. Identify funds
After setting goals and calculating your risk appetite, identify funds to invest in. Do proper research to select suitable funds to meet your goals and objectives.
If you don’t know how to evaluate mutual funds, consider getting help from the experts because a wrong decision might lead to lower returns than anticipated.
There are various categories of mutual funds available in the market, and not every fund suits your requirements, so do proper research and then select the right one.
4. Create a focused portfolio
After selecting the funds, create a focused portfolio for each goal. It will help you track your funds’ progress towards your financial goals.
While creating a focused portfolio, consider some essential points like giving your portfolio proper diversification, including multiple asset classes if required, etc.
Also, remember quality over quantity while creating your portfolio.
How to Track Mutual Fund Performance?
5. Regular investment through S.I.P
Consider investing regularly in these funds to make your investments more affordable and disciplined. S.I.P. (Systematic Investment Plan) helps you to give the option to invest in a small amount regularly, which could be done weekly, monthly, quarterly, or yearly.
Regular investing will make your portfolio grow more stable as you will buy mutual fund units at higher and lower prices. The best advantage of investing through S.I.P. is cost averaging.
6. Make a lumpsum investment
Try to make a lumpsum investment whenever possible, like when you get bonuses or profits. This way, you can achieve your goals before the target date.
Let’s understand this with an example, suppose you are investing Rs 15,000/month for ten years, and the expected growth rate is 13% annually.
The wealth you will be accumulating is Rs 37 lakhs, but after one year, if you put a lumpsum of Rs 50,000/-, then you will be able to accumulate the same amount in ten years, or you can accumulate Rs 39 lakhs after ten years.
Are mutual funds a good idea in 2023?
Yes, mutual funds can be a good idea in 2023 for building wealth. They offer diversification, professional management, and the potential for long-term growth. However, it’s important to choose funds that align with your financial goals and risk tolerance.
What investment strategies do you have going into 2023?
In 2023, consider a balanced approach to investing, including a mix of equity and fixed-income mutual funds. Diversify your portfolio, focus on long-term goals, and regularly review and adjust your investments to stay aligned with your financial objectives and risk tolerance.
When should you exit the mutual fund?
You should consider exiting a mutual fund when your financial goals change, the fund’s performance consistently underperforms, or you need to rebalance your portfolio to maintain your desired asset allocation. Always review your investments periodically to make informed decisions.
What is the best investing strategy?
The best investing strategy depends on your financial goals, risk tolerance, and time horizon. Diversification, long-term focus, and periodic portfolio review are generally solid principles to follow. Consider seeking advice from a financial advisor to tailor a strategy that suits your specific needs.