My monthly income is around 70k no debts yet.. Invested around 4.5 Lakh in mutual funds I am a single mother with age 35 years i have a 6 year old son. Want to invest more in mutual funds. Have around 8 lakh as liquid cash in savings account.. should I make FD or invest in mutual funds and what will be the risk. And can I have a fund where I can invest for 6 to 7 month and appreciation my fund
Ans: Given your current situation, it’s great to see you are already investing in mutual funds and looking to make your money work harder for you. Let’s explore your options for both short-term and long-term investments.
Current Financial Position
Monthly Income: Rs. 70,000
No Debts: A positive factor that gives you financial flexibility.
Mutual Fund Investments: Rs. 4.5 lakhs
Savings: Rs. 8 lakhs in a savings account
Investment Goals and Risk Tolerance
You have a stable income and no debts, which is a strong foundation. As a single mother with a young son, it’s important to balance risk and security in your investments.
Short-Term Investment Options
For short-term investments (6-7 months), you should focus on preserving capital while seeking some appreciation. Here are some suitable options:
Liquid Funds: These are mutual funds that invest in short-term debt instruments. They offer better returns than savings accounts and are low-risk.
Ultra Short-Term Debt Funds: These funds invest in debt securities with short maturity periods. They offer higher returns than liquid funds but come with slightly higher risk.
Long-Term Investment Options
For your long-term investments, especially given your willingness to take risks, consider the following:
Equity Mutual Funds: These funds invest in stocks and have high growth potential over the long term. They are suitable if you are comfortable with market volatility.
Balanced or Hybrid Funds: These funds invest in both equity and debt. They offer a balanced approach with moderate risk and reasonable returns.
Thematic and Sectoral Funds: If you want to explore specific sectors like technology or healthcare, these funds can offer high returns but come with higher risk due to their concentrated investments.
Benefits of Mutual Fund Investments
Diversification: Mutual funds spread your investment across various securities, reducing risk.
Professional Management: Fund managers use their expertise to make investment decisions.
Liquidity: You can redeem your investment whenever needed.
Avoid Fixed Deposits for Long-Term Growth
Fixed deposits (FDs) offer safety but low returns compared to mutual funds. Given your financial goals and willingness to take risks, investing in mutual funds is a better option for long-term growth.
Disadvantages of Index Funds and Direct Funds
Index Funds: These funds replicate a market index. They lack flexibility and cannot outperform the market. Actively managed funds offer better potential for high returns.
Direct Funds: While they have lower fees, they lack the professional guidance you get when investing through a Certified Financial Planner (CFP). Regular funds through a CFP can help you make better-informed decisions.
Risk Management
Diversify Your Investments: Spread your money across different types of funds to balance risk and reward.
Emergency Fund: Keep a portion of your savings (about 3-6 months of expenses) in a liquid fund for emergencies.
Regular Monitoring: Review your investments periodically to ensure they align with your financial goals.
Final Insights
Investing your Rs. 8 lakhs in a mix of liquid funds for short-term needs and equity or balanced funds for long-term growth is a sound strategy. Avoid FDs for long-term investments due to their lower returns. Consult a Certified Financial Planner to tailor your investment strategy to your specific goals and risk tolerance.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
