Mutual fund investing is an effective and popular way to enhance your wealth and attain your investment financial goals. Note that such investment options not just allow you to meet your long-term financial goals but also your short-term goals. All short-term life goals spanning up to three years, such as planning a trip abroad, saving for a home down payment or accumulating for big tickets can be met by investing in debt mutual funds. Explored here is the significance of investing your investible in debt mutual funds to meet your short-term financial goals and a stepwise guide for new mutual fund investors to begin with their investment journey in debt fund.
Reasons to invest in debt mutual funds for meeting your short-term financial goals
Diversification
Debt mutual funds invest in distinct kinds of fixed-income avenues disseminating the risk throughout multiple issuers. This diversification assists to manage the negative impact of default by a single issuer.
Reduced volatility
Debt mutual funds are considerably less volatile as compared to equity mutual funds, which makes them a safe investment option for meeting short-term financial goals. They offer a steady stream of income as well as protect your capital from any market fluctuation.
Liquidity
Debt mutual funds provide high liquidity, permitting you to liquidate your investments fully or partially whenever required without incurring any penalty or waiting for lock-in periods to end.
What are the crucial steps you must take to invest 20k in the preferred debt mutual fund scheme to meet your short-term financial goals?
Step no. 1
Determine your investment goal and investment horizon
Figure out your specific short-term financial goal and estimate the investment horizon of the goal. This will allow you to select an appropriate debt scheme.
Step no. 2
Research and choose a debt fund
Factor in parameters like the fund’s previous performance, the fund manager’s expertise, risk profile, expense ratio, etc. Doing so would allow you to select the debt scheme which is in alignment with your investment time frame and risk appetite level.
Step no. 3
KYC compliance
Finish the KYC (Know Your Customer) compliance procedure by providing the asked documents to an authentic mutual fund online portal or intermediary. This step is necessary to begin your mutual fund investment.
Step no. 4
Invest using a reliable platform
Periodically invest in the preferred debt fund scheme through an asset management company (AMC) website or reputable mutual fund portal. Make sure the platform provides a transparent, user-friendly interface with swift access to customer service.
Step no. 5
Invest in the preferred debt scheme systematically
Consider investing in a debt mutual fund scheme via SIP (systematic investment plan). SIP permits you to periodically invest a fixed investible, which helps lower the impact of market volatility and allows you to gain the benefit of rupee cost averaging.
Step no. 6
Assess and review the investments periodically
Periodically keep track of your investments in debt funds and assess its performance at least twice a year. Make required adjustments depending on your financial circumstances and changing market conditions.
Conclusion
Investing in a debt mutual fund is a prudent strategy for attaining your short-term goals while generating higher returns than traditional fixed income instruments. Debt mutual funds offer liquidity, stability, and diversification benefits, making them a prudent choice for attaining short-term goals. By stepwise following the measures outlined above, you can make a better decision and enhance your chances of attaining success in debt mutual fund investing.