One day, an artist decided to create a masterpiece painting. He chose the perfect canvas and colours and skillfully used them for his creative journey. Finally, after countless hours of dedication, his vision came to fruition and a breathtaking masterpiece was born. Investing in a mutual fund can be a lot like creating a masterpiece.
Just as an artist carefully selects his canvas and colours, you must also choose the right mutual fund to meet your financial goals. But how much money should you invest?
The answer is not always clear-cut and depends on a variety of factors. Let us take a look at them.
How much money should invest in a mutual fund?
Your financial goals
Your financial goals are very important when you make decisions regarding mutual fund investments.
If you have long-term financial goals such as saving for retirement or buying a house, you should accumulate a large sum of money. Long-term investments have more time to grow. Therefore, systematically investing small amounts will result in a large return.
For example, a long-term investment in an equity mutual fund through the Systematic Investment Plan(SIP) of Rs. 10,000 with an average annual return of 12% could grow to Rs. 99,91,479 in 20 years.
Conversely, if you have short-term goals like saving for a vacation or a down payment on a car, investing in short-term funds will be more suitable.
Your risk tolerance
When thinking about how much to invest in mutual funds, you should also think about how much risk you are comfortable taking.
If you are cautious, it may be better to invest less money in mutual funds. Because mutual funds may not be steady in the short term. However, if you are willing to take more chances, you could invest more money.
Your investment horizon
Investment horizon is the length of time you plan to hold your investment.
A more extended investment horizon like 20 years or more gives you the freedom to invest a larger amount of money in mutual funds. The longer the time horizon, the more will be the power of compounding money.
If your investment horizon is short, investing a smaller amount may be more appropriate. By doing so, you can limit your potential losses and reduce your risk exposure.
Your current financial situation
If you have a stable income, it is wise to invest a larger amount of money in mutual funds. That means if you have a surplus of funds after paying your monthly bills, you could allocate a portion of your income for investment.
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On the other hand, if you have limited income or are carrying debts, it may be more appropriate to invest a smaller amount of money.
It is crucial to prioritize your financial stability before investing. For example, paying off your high-interest credit card debt should take priority over mutual fund investment. Once you achieve a more stable financial situation, you can then consider investing more money.
Investing in mutual funds can be a valuable tool for achieving your financial aspirations. By making wise decisions and taking calculated risks, you can reap rewards. As the saying goes, “Fortune favours the bold”. So take a leap of faith and invest in mutual funds for your bright future.
