Investors new to the investing world often misunderstood the terms mutual fund investments and equities. They think that they are interconnected. Well, they couldn’t be more wrong. Though it is true that equity funds help to generate wealth in the long run, but there are other types of mutual funds meant to cater varying needs of investors. Sure, equity funds are a great means to grow your capital, but they might not be the ideal investment option for investors looking to protect their wealth. Several investors wish to invest in mutual funds with the aim of keeping their capital safe while earning returns that are not volatile. Let’s understand how mutual funds can provide with the safety of capital.
Protecting your wealth
Sure, everyone wishes to grow their wealth. However, one of the negative implications of capital appreciation is exposing your capital to short-term risks of volatility. A part of an investor’s capital that is invested in instruments such as bank fixed deposits, small savings schemes, money market instruments, bank savings account, etc. that are not subjected to the volatility risk. An investor may need to protect their capital for various reasons such as paying their child’s fees for the next term, or down payment of their car, or planning a vacation, etc. Financial goals that need to be catered in a short period of time, say up to one year need to be invested in instruments that offer capital safety. You can choose to invest in liquid funds for the same. These investment options not only offer low volatility to investors that helps to preserve the capital but also help them earn some returns on their investments for the period they end up investing. The biggest advantage of investing in liquid funds is that you can withdraw your funds as and when needed and thus do not have to define your investment tenure when investing in liquid funds.
Preserving your capital
Investors who have been investing in the markets for a while and are close to the completion of their long-term financial goals must ensure that a part of their portfolio provides the umbrella of capital safety to their investments. In simple words, they must make efforts to preserve the wealth that they have accumulated by now. A part of your investment which you might need soon for your financial goals could be used to be invested in safer investment options such as liquid funds.
On a few occasions, the amount allocated to liquid mutual funds do not end up being utilized by the investor. In such a scenario, an investor can systematically transfer their funds into investment options that amplify their returns provided that plan to invest for a longer duration. You can choose between equity and debt funds basis your investment portfolio and financial goals.
To sum up, for investors looking to preserve or safeguard their wealth, there are a wide variety of options other than bank savings account. You might want to try liquid funds that offer ease of investing, flexibility, stability, liquidity, and other benefits to investors. Happy investing!