Financial Planning: Role of the Mutual Funds

The current market condition and rapidly changing living standards demanda solid financial planning now more than ever.The choice of investment instruments should be such that not only it earns a steady flow of returns but also enables to execute a predefined financial planning effectively.

How mutual funds play the biggest role in financial planning?

The mutual fund is essentially an effective financial planning tool; it tends to offer investors with financial planning solutions through its array of schemes and associated benefits. It is a medium that enables the investors to execute their financial plan effectively. The mutual funds offerthe investors with the options of choosing from among liquid funds, sectoral funds and other funds which differ in terms of their risk-return perspective. Most of the funds are tax and cost efficient; investors can choose the most suitable type of scheme as per the financial plan.Investors can match their risk tolerance capacity, liquidity requirement and expected returns with a suitable fund before investing in it.Those with a long-term financial goal and disciple approach towards investment can use investments tools like Systematic Transfer Plans or Systematic Investment Plans to tide over in chaotic market phase and to create wealth.

The mutual funds play an important role in financial planning in the following ways:

  • Risk profiling: The primary step of any financial plan is to find out the risk tolerance capacity of the investor so that they can invest in funds that are suitable for their market sensitivity. The basics of mutual fundinvestment require athorough profiling of the risk appetite of the investors before putting money into any scheme. This ultimately helps the investors to execute the first step of financial planning in the course of managing their finances.
  • Diversification of funds: The mutual funds allow investors to invest in an array of traditional and non-traditional funds. This aids the investors to execute the plan of diversification of funds and makes it possible for them to harness the power of compounding and at the same time lowering the intensity of risks. This ultimately enables the investors to maintain a balance between the flow of returns and the associated risks.
  • The term of investment: The mutual fund investors invest in various long-term, mid-term and short-term schemes as per the market conditions. An effective financial requires the investors to inculcate the art of timing the market before investing in any scheme. The mutual funds help the investors inculcate this capability by offering them multiple investing options with flexible terms. This allows them to sync their financial plan with their investments.
  • Professional guidance:The investors of mutual funds automatically avail ofthe assistance of fund managers who guide them to redistribute and balance their portfolio and risk profile as per the market requirement.

The mutual funds can prove effective in financial planning only if you have chosen the right mix of schemes in your investment portfolio. Get in touch with our team of financial experts to sync your financial plan with your choice of investment.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not an indicator of future returns. Wealth Redefine is a AMFI registered Mutual Fund distributor – ARN - 167127

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