Every individual has specific goals for the future, usually involving children’s education, buying a home, setting a corpus aside for recreation such as travel and entertainment, and so on. Then there are goals like wealth creation and retirement. Choosing the best investment options, such as mutual funds, helps in meeting one’s life milestones. This article explores the advantages of mutual fund investments and offers a simple guide on how to create your fund portfolio to meet future goals.

Why mutual funds and no other options?

There are opportunities galore that you can tap into in terms of creating future wealth, but mutual funds in India offer the widest range investment options and more bang for the buck in terms of ROI. You can pick a mutual fund online based on your risk appetite, investment horizon and specific goals, however, do note that you would largely be picking from balanced, equity and debt asset classes.

Spend time in the market, don’t time the markets

A common mistake that most novice investors make, is to try and ‘play’ the markets such that they reap a rich harvest with respect to their investments. However, it takes years for one to understand the vagaries of the stock market, and most investors may be out of their depth in analysing trends the way an expert fund manager can. Besides, this approach is fraught with risk.

When trying to create wealth for the future, you must approach the investment with a view to growing your money over time, instead of looking for the right time to invest. Every investment, especially mutual funds, needs a certain time frame to consolidate itself and grow in the direction of projected goals.

Make a list of your future goals as per different life stages and set timeframes next to each. After completing this exercise, you can move on to selecting the right mutual funds online to meet each goal.

How to use mutual funds for the future

Now that you have decided to explore mutual funds for the future, here’s a roadmap to follow for the best results:

* Start early. The more time you give the fund to work, the less you need to invest in it every month or year, and the higher its period of adjustment against market upheavals and potential risks. For example, if you start accumulating a sum of Rs 50 lakh for your child’s future foreign education when you are 28 years old (when your child is still an infant or toddler), you get a period of about 20 years to invest in an SIP that grows your monthly investment via compounding. If you start to invest late for the same goal, you must pay more towards creating this amount. Giving the fund time to consolidate and grow takes the pressure off yourself, too.

* Use diversification. The key to successful wealth creation is to diversify your investment portfolio. Diversification protects the portfolio against risks and makes for a better wealth creation tool. Calculate the mutual fund holdings to add diversification every year, without adding huge amounts of money in the chosen option. Go for a range of options from large to small caps, different business sectors and different industries.

* Match your options to your goals. There are different types of mutual funds to choose from that you can match with each future life goal. You can choose from among growth funds (capital growth from stocks of different high performing companies), sector funds (companies within a specific business sector), index funds (a portfolio that tracks a market index), and value funds (normally chosen for long term investors who invest in undervalued but well-performing companies).

* Choose as per time frames: The right mutual fund in India can match your future milestone in terms of time horizon for investment. If your horizon is up to 10 years, then you should go for blue chip or large cap funds, or even aggressive hybrid funds. A shorter time horizon is better met with higher debt exposure hybrid funds or debt mutual funds, while a horizon of over 10 years is best for equity funds, multi-cap, small cap, or mid-cap funds.

* Review your portfolio periodically. An annual review of the mutual fund portfolio helps you see which funds are performing as per target, and which need correction. This helps you stay on track to meet all your future goals. Your fund manager can review the portfolio for you and suggest the best ways to move forward. This often involves partially withdrawing against certain funds before closing them entirely or investing more within a certain asset class.

Discuss your future roadmap with your fund manager and allow them to create the right investment chart for you to follow over the next few years.