A man aged 5 1 said, "I can't take any risks." I know nothing about the stock market and mutual funds. Therefore, I want to put my money in my savings account and FD. " ,
A 25-year-old man said, "I want to double my investment in six months, and I can take the risk." If necessary, I can even borrow it from my relatives and friends. So, I want to invest in derivatives market (futures and options). "
These are the two extremes of investment.
On the one hand, we have very conservative investors who are unwilling to take any risks; On the other hand, we have very aggressive investors who are willing to take all risks.
But which method is correct?
None of them.
Both conservative and radical methods are not good. The answer is somewhere in between.
Why is the ultra-conservative method not good?
Why is the ultra-conservative method not good?
If a person puts money in a savings account, the interest rate is about 3.5%, while the average inflation rate in India is about 4.5%.
This means that the currency is not growing, but shrinking. The 100 rupees deposited in the savings account will become 103.5 rupees after one year, but the actual value of 103.5 rupees is 99 rupees. In the long run, the real value will further decline.
Take FD as an example, the interest rate is between 6% and 7%, which is only higher than the inflation rate 1.5%-2.5%.
Why is extreme radicalism bad?
Intraday stock trading and investment in derivatives market are more like gambling, and most retail investors lose money in gambling. Not everyone likes it.
Many people become too greedy and invest without any knowledge. The end result is a loss.
This is where mutual funds can help balance risks and rewards.
However, it is very important to establish a correct mutual fund portfolio, which can meet personal financial goals.
However, before we create a portfolio, we need to ask a few questions:
What are my financial goals? Do I want to build a retirement database, or do I want to get a fixed income from my investment? Do I want to buy a car or a house?
When do I need money? Do I need it in the next 3 years or 10?
What are the feasible options to achieve my financial goals?
This meeting will vary from person to person, and a specific mutual fund cannot be generalized. However, let's try to consider several roles to understand the method of building a mutual fund portfolio.
Person 1: 25 years old, working in a private enterprise.
Ankit is a 25-year-old software engineer. Ankit is not responsible. With the increasing work pressure in the corporate world, pollution and bad eating habits have caused more and more health problems. He thinks he can work until he is 60 years old. So he wants to retire at the age of 50 and establish a retirement subject for this purpose.
Methods: Ankit is still young and the investment period is 25 years. Ankit should start investing in stock mutual funds. He should allocate 50% of his own funds to large-cap stocks, 25% to medium-cap stocks and 25% to small-cap stocks. He can also choose multiple mutual funds to combine large, medium and small-cap stocks in an appropriate proportion. Ankit shall ensure that there is an emergency budget for 6 months in the working fund to meet any unexpected expenses.
Character 2: Newly married couple.
Wenkaite is a 3 1 year-old professional. He got married last year and his wife is working. The couple want to buy a car within a year.
How to deal with it: The Winkates only have one year to buy a car, and they can't afford any risks. Therefore, they should not invest in stock mutual funds. Instead, they should invest in liquid mutual funds. It is a mutual fund with the lowest risk, and the return rate is between 7% and 8%, so it is a better choice for FD.