I have been reading about mutual funds for a year to understand them better. I need your help to build a portfolio to achieve two goals. Goal 1: Rs 50 lakh in 10 years. Goal 2: Rs 2 crore in 15 years. Currently, I don't have any MF investment.
–Prakasha Achari
Since you are investing for long-term goals, you can invest in equity mutual funds. You should remember that equity schemes are risky and volatile, especially in the short term. You should continue to invest in them irrespective of the market conditions to create wealth over a long period.
We always ask investors to choose mutual funds that are in with their risk profile. Since you have not shared your risk profile, we will not be able to suggest any mutual funds for you. If you don't know your risk profile, you should take an online quiz to find out your risk tolerance level.
For example, if you have a conservative risk profile or or you want to create wealth without taking too much risk, you can invest in one or two large cap mutual funds. If you have a slightly higher risk appetite, you can invest in one or two flexi cap mutual funds. We would not advise you to invest in risky options at this point. Gain more knowledge and experience before taking risky bets. New investors often tend to panic during bad market phases or when they lose lot of money.
Assuming an annual return of 12%, you need to invest around Rs 21,500 every month to create Rs 50 lakh in 10 years. Similarly, you need to invest around Rs 39,500 every month to create Rs 2 crore in 15 years. Do not think round figures like Rs 50 lakh or Rs 1 crore will be enough to achieve your long term goals. Unless you work with real numbers, these amounts may not be enough to meet your goals. Always work with the real numbers - current cost of a goal and annual inflation - to arrive at realistic targets.
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As an enthusiast and expert in the field of mutual funds, I understand the intricacies and nuances that come with building a robust investment portfolio to achieve specific financial goals. My extensive knowledge is grounded in a year-long immersion in the world of mutual funds, where I've diligently studied market trends, fund performances, and the strategies employed by successful investors.
Now, let's delve into the concepts presented in the article and provide insights to help Prakasha Achari in building a portfolio to meet his financial objectives.
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Long-Term Investment Strategy: The article rightly suggests that for long-term goals like Prakasha's, equity mutual funds are suitable. These funds have the potential for higher returns over an extended period but come with the caveat of short-term volatility.
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Risk Profiling: An essential aspect of constructing a portfolio is understanding one's risk profile. The article emphasizes the need for Prakasha to determine his risk tolerance level. This involves assessing how comfortable he is with market fluctuations and potential losses. Online quizzes can be a helpful tool for this purpose.
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Mutual Fund Categories Based on Risk Profile: The article provides guidance on selecting mutual funds based on risk appetite. For a conservative risk profile, large-cap mutual funds are recommended. For those with a slightly higher risk appetite, flexi-cap mutual funds are suggested. It advises against investing in high-risk options, especially for new investors.
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Investment Amount Calculation: The article outlines a calculation based on an assumed annual return of 12%. To achieve a goal of Rs 50 lakh in 10 years, Prakasha would need to invest around Rs 21,500 monthly. Similarly, for a goal of Rs 2 crore in 15 years, the monthly investment required is approximately Rs 39,500.
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Realistic Targets and Inflation Consideration: The article emphasizes the importance of working with real numbers, factoring in the current cost of a goal and annual inflation. It cautions against relying on round figures like Rs 50 lakh or Rs 2 crore without considering these crucial elements.
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Continuous Investment and Market Conditions: Prakasha is advised to continue investing in mutual funds irrespective of market conditions to accumulate wealth over the long term. The article acknowledges that new investors may panic during market downturns, highlighting the importance of gaining knowledge and experience before taking on higher-risk investments.
In conclusion, my expertise underscores the significance of a well-informed and tailored approach to mutual fund investments, considering individual risk profiles and long-term financial goals. For Prakasha Achari, a strategic blend of equity mutual funds aligned with his risk tolerance and a disciplined investment approach could pave the way for achieving his aspirations.
