CAN MUTUAL FUNDS GIVE YOU SAFETY OF CAPITAL?
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As soon as the term mutual funds is mentioned, it is often linked with equity investments and SIP (systematic investment plan) to generate wealth in the long run. However, there are different types of mutual funds available to cater to different goals. One such investment goal is preserving your capital. Although equity investments are known to generate wealth, they do not help to preserve wealth. So, can mutual funds give an investor the safety of capital? This article aims to answer this question. Read on to know more.
Low-risk investment options not only earn returns, but they also help to preserve the wealth. Examples of such investments whose returns are not volatile include ultra-short term debt funds and liquid funds. These funds are endowed with the unique features of stable returns and significantly lower risk to build a section of your investment portfolio that focusses on preserving your wealth.
Protecting capital
Investors often relate to investing with wealth creation. However, one of the negative connotations to capital appreciation is the short-term risks of volatility. This basically means that an investor cannot invest a part of their investment that they wish to safeguard. There is a part of capital of an investor that ends up in bank fixed deposits (FD), national savings certificates (NSC), savings account, and other types of small savings schemes. These investments are not subject to volatility, and hence helps to safeguard your capital.
However, instead of depositing your money in low-earning investment options, how about investing in securities that offer high degree of liquidity and also aims to deliver inflation-beating returns. Yes, we are talking about liquid mutual funds. The biggest advantage of liquid funds is that an investor does not has to define their investment tenure and can withdraw their funds as and when needed. Redemptions on liquid funds take about just one working day to process in the bank accounts of the investor.
Preserving wealth
If you have been investing in the markets for quite some time and are close to the maturity of your long-term financial goals, then a part of your portfolio would need an umbrella of capital protection. In simple words, you must preserve the wealth you have accumulated over the years. What’s more, you can switch a percentage of funds required to achieve your goal that in near to maturity in low-risk investment options such as liquid funds.
When protecting your capital is more important than creating wealth, don’t think that you are only limited to traditional investment options such as bank fixed deposits and savings scheme. Be creative and experience the stability, flexibility, and the ease of transacting in liquid mutual funds and earn higher returns than these traditional options the next time you wish to park your money in low-risk investment options. Also, to answer the everlasting question, yes, mutual funds can give investors the safety of capital. Don’t forget that you can calculate mutual fund returns using a mutual funds return calculator. Happy investing
