A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What is the right age to start financial planning for retirement?
The best time to start planning and investing for retirement is to start today, whatever your current age and financial position in life. The sooner you start investing for a goal, the more time your money gets to get worse. Let’s say you’re 30 years old today and start a monthly SIP of INR 2000 for the next 30 years. Your money has a lot of time to get worse and grow. Assuming an annual interest rate of 12%, you can have a pension corpus of 70 lakh against an outlay of 7.2 lakh over 30 years.
If you started the same SIP a decade later, you will end up accumulating 20 lakh for an outlay of 4.8 lakh over 20 years. As you can see, a 10-year delay reduced your pension corpus by a third. Unfortunately, most people don’t realize the power of long-term compounding and end up missing out on the opportunity to create a larger body of retirement by starting late. Delaying investments for a few years is a waste of time and therefore the opportunity for money to multiply.
Everyone should start planning their financial goals and investing toward these goals as soon as they have settled into their first job. In the end, the consistent long-term investor wins the race.