Take a step towards financial freedom with mutual funds

Financial Independence with Mutual Funds this Independence Day
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Financial independence is important for a fulfilling life. However, financial independence isn’t necessarily about being wealthy. Instead, it is the freedom to live a desired life without monetary concerns coming in the way. Such independence can be within reach with some financial discipline. A steady investment habit can help generate wealth over time.
One such route to financial freedom can be through mutual fund investments. These have the potential for significant gains over long term but also come with a risk component, because their performance is linked to the fate of the financial market. However, a robust investment strategy and an experienced fund manager can help manage some of the market volatility when you invest in mutual funds.
Read on to find out see if you can consider a mutual fund investment to get closer to financial freedom.

  • Table of contents:
  1. You can choose what to invest in
  2. You can choose a desired tenure
  3. Invest a little or a lot
  4. Choose your risk-appetite:
  5. FAQ

You can choose what to invest in

Based on the assets in which they invest, mutual funds are divided broadly into equity and debt funds. An equity fund invests primarily in company stocks, while debt funds invest in fixed-income securities such as corporate and government bonds, treasury bills, certificates of deposit and more.
Equity investments have the potential for high rewards but also entail greater risk, while most debt funds carry a lower risk with moderate return potential. There are also hybrid funds, which combine debt and equity investments in varied proportions and can also put money in other asset classes such as gold and real estate.
The mutual fund investment horizon you’re looking at and your risk tolerance threshold are important factors in deciding whether to opt for debt, equity, or a hybrid portfolio. Equity-heavy portfolios are usually recommended only if you invest in mutual funds for a long duration because markets can see major fluctuations in the short term but tend to stabilise over a longer duration, say 7 to 10 years.
Debt funds, on the other hand, are considered better for short-to-mid-term investment horizons (roughly between one and five years) because they tend to yield relatively stable returns, less volatility compared with equity but may not offer significant growth.

You can choose a desired tenure

From a few months to several years, you can choose a mutual fund investment period that fits your needs and goals. If you’re saving up for retirement, you would typically have a long investment horizon of more than 10 years.
Other goals or investment objectives may require different durations, based on which you can choose your mutual fund type or category. There are also mutual funds tailored for very short-term investments of less than a year, which invest mainly in debt and money market securities.

Invest a little or a lot

You can invest in mutual funds in a lumpsum or through regular instalments through a Systematic Investment Plan. An SIP allows you to choose an instalment amount and frequency (weekly, monthly, quarterly etc) that fits your income, expenses, and other priorities. The amount can start from just a few hundred rupees. These small instalments have the potential to build wealth over time through capital appreciation, compounding gains and other factors, especially if you start early.
You can also hold multiple mutual fund schemes, so your SIP amounts can vary in each scheme depending on what your investment goal is.

Choose your risk-appetite

The risk level of a mutual fund scheme is indicated by a ‘riskometer’ that ranges from low to very high. This helps you choose a mutual fund type or portfolio combination that aligns with your risk threshold and goals.
Equity-heavy portfolios carry higher risk. Even within that, those investing in large-cap companies carry lower risk than those that put money into smaller companies even though both would be categorised as very high risk. For more aggressive and risk-tolerant investors, there are also contra funds which follow a contrarian investment strategy that goes against the market tides.
Sectoral funds are another high-risk mutual fund category where money is invested into equity instruments of a particular sector, such as energy, infrastructure or pharmaceuticals.
Credit risk debt funds, meanwhile, invest in debt instruments of companies that are not so highly rated, which increases the uncertainty of the returns but has the potential for a relatively better growth if those companies perform well.
High-risk funds are suited to aggressive investors or those with high income levels who are freely willing to bet on the market. You can also opt for a diverse portfolio with a mix of high-risk and low-risk funds.

With mutual funds, you have the flexibility to build a portfolio that best fits your investment goals. If it’s possible, consult a financial advisor before making investment decisions.


How can mutual funds contribute to financial freedom?

Mutual funds provide opportunities to invest in diverse portfolios managed by professionals, potentially growing wealth and creating a path to financial independence over time.

Are mutual funds suitable for beginners?

Yes, mutual funds can be a good starting point for beginners due to their diversification and professional management, helping individuals with limited financial knowledge build wealth gradually.

What types of mutual funds can be suitable for achieving financial freedom?

Diversified equity funds, growth-oriented funds, and long-term equity funds can be considered for achieving financial freedom, depending on your risk tolerance and investment horizon.

Can mutual funds guarantee financial freedom?

Mutual funds carry market risks, and returns aren't guaranteed. However, the equity-oriented funds offer the potential for substantial growth over time, making them a valuable tool in the pursuit of financial freedom.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.