Everyone wants to create wealth over a long period of time. However, some of them worry about risks associated with investing in equity mutual funds. For the newcomers, equity mutual funds invest in stocks and the stock market can be extremely volatile and risky, especially in the short term. That’s why many investors never invest in equity mutual funds to build wealth or pocket better after-tax returns.
Why is it important to invest in stocks to create wealth? Most safe investment options (think of bank deposits or provident fund accounts) offer modest returns that fail to beat the inflation. When your investments fail to beat inflation, you lose purchasing power. In simple terms, you will not be able to afford things or purchase things or achieve your goals. That’s where stocks come into the picture. Countless studies have shown that equity offers superior returns or inflation-beating returns over a long period of time.
Hold on. What if you don’t want to invest for a not so long period of say 10 or 15 years? For example, someone wants to invest for five or six years. Can they invest in equity funds?
If you are investing in equity funds, it can be risky. A way out would be to invest in aggressive hybrid equity funds that invest 65-80% in stocks and 20-35% in debt or fixed income instruments. The debt part of the portfolio offers stability to these schemes in volatile times. These schemes are also supposed to rebalance their portfolio regularly to stick to the asset allocation plan. This regular profit taking also helps them to maximise profits.
Please note, we are assuming that you are making a lumpsum here. If you are investing via SIP remember that you can’t hope to get double-digit returns as some of your SIP investments will complete only a few months.
Also, please note that this is not a recommendation. This exercise was done only to showcase 10 aggressive hybrid schemes that have performed better in five years. For recommendations, see: Best aggressive hybrid funds
(Catch all the latest news about mutual funds, MF insights & analysis, best buys and investment trends on ETMutualFunds.com)
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