There are people who feel happy that they are saving for a rainy day. And finally the rainy day does arrive and they realize that they were not prepared or their umbrella had many holes in it. So what really goes wrong?
The reason could be a miscalculation on their part or a wrong choice of funds. In the larger scheme of the financial world, there are many things that may go wrong and people need to be aware of some basic facts before they start investing and do it in a systematic way.
Investment should beat inflation
The most important rule of investment is that it should beat the inflation. The inflation is a dynamic quantity and keeps fluctuating depending on the state of the economy in the country. it is, however, important to invest money in such instruments that get a rate of interest more than the rate of inflation. Otherwise, the value of money you have invested will keep decreasing day by day. For example, whatever you could buy for ten Dollars in the year 2000 can be bought today for 12 Dollars. So while saving keep the price index of things and inflation in mind and go for schemes that bring in more interest.
Why Mutual funds?
Mutual funds are investments that are managed by professionals. This ensures that the investments earn a better rate of interest and are invested in many more instruments than you could have managed alone. These funds have money from many people and invested in a diversified portfolio. These funds provide many advantages,
- As many people invest in these funds so the large pool of money guarantees safety and gets you the economies of the huge amount of money.
- Professional managers use their expertise to diversify and get better rates of interest across the market.
- These can be easily withdrawn or taken out when there is an emergency.
On the other hand, the investors have to pay some fees in order to use the expertise of the professional management of the funds.
What should you buy
There are many types of mutual funds, like fixed income, open-ended, equity or balanced funds etc. each one has some unique features and is suited for a particular type of investor profile. You can check online for the rankings of various Mutual fund companies and their instruments and their past performance as well. The final decision will be based upon your requirement of funds in future, the need for liquid assets and the appetite for risk.
Portfolio managers usually assess your financial health and recommend certain schemes that you can use easily. But you should be careful to not put all the eggs in the same basket. Diversify and be safe and beat the inflation by earning more from your investments.