Mutual Funds help us achieve our goals in the long run. Everyone says Mutual Funds Investment are better if done for a longer duration.

But the question is – How long is the long term?
In this article today, we will be discussing Strategy for Long-Term Mutual Funds Investments.

A vision without a strategy remains an illusion

Lee Bolman

Mutual Funds work on the principle of Compound Effect. Which means money makes money and this usually happens over a period of time. The longer you let your money stay invested the more returns you can expect.

Now for something this good, we believe it not only takes time but also bit of homework and a good strategy to come up with.

What do we mean by ‘Long-Term’?

The word Long-Term refers to something that stays for a longer duration, however, no one tells us how long is Long-Term. As per investors, they usually call any investment for more than 3-5 years as long term. However, this may vary as a person who is in his 30’s right now, will want to keep his money invested for the next 30 years until he retires.

The power of compounding will help the 30-year-old to benefit from this investment since the money will be making money for him. Giving time to your investment helps your assets appreciate and grow over time.

Why Long-Term Mutual Funds Investments are better?

Let’s take quick example over here – A Mutual Fund which is showing a 10-year historical return of 12%.

So, a person who invested 10,000 in this Mutual Fund ten years ago, has now 22,000 (which turns out to be more than double) as an investment return.

When we say about past performances we should be driven by it since the future cannot be predicted but at the same time, history does give us a clear understanding of what the future might hold. Hence, the mathematics here, shows us why Long-Term Mutual Funds Investments are good.

Strategy to Create a Long-Term Portfolio

Define your Long-Term Period

The first and foremost strategy is to set your goal. Mutual funds work best for you if you decide upon a goal that you are looking to fulfil. There can be a different portfolio for a different need and you can make multiple of them depending on what you want from your investments.

For example, if you are looking to create a retirement corpus for yourself, it would depend on how many years are there before you retire. You can also prepare a separate portfolio for your kid’s education, which will help you streamline your investments and strategically build a safe future, say 15 years down the line. In this way, Long-Term Mutual Funds Investment can be a great option.

Research your Investment Options

We cannot just invest in any Long-Term Mutual Funds Investments, we need to research which one suits our needs better. In Mutual Funds, we have various categories like Equity, Debt funds etc. We need to calculate our risk tolerance along with it and invest accordingly.

We all know, Equity funds are riskier than Debt Funds, however, there are further more than 10 different funds which fall under the main funds category.

For example, In Equity Mutual Funds, Small-Cap funds are riskier than Large-Cap Funds.
Similarly, in Debt Funds, Credit Risk Funds are riskier than most other fund categories.

Read more on MFGrow Blog – Types of Mutual Funds

Sometimes higher returns are not always the safest bet.

Assess you Risk Levels

Like we mentioned before, it deserves a separate note. We cannot ignore our Risk Tolerance as we don’t want to go overboard our emotions and kill our investments. Hence, keep a close eye on the risk preference of the particular fund.

Develop your Long-Term Mutual Funds Investment Strategy

The best strategy is to not create a duplicate strategy. Keep them unique and concise with your goal. You may want to invest money for your marriage, buying a house or a car, kids education, or for your higher studies abroad it could be anything and on basis of that, you decide which Mutual Fund to invest in.

Do keep a check on your Risk Profile as it will help your portfolio become solid and sorted for the future as well. Since this will help you plan ahead and accordingly.

Diversification is the key to successful strategy

‘Never put all your eggs in one basked’ – this saying has great learning behind it. You as an investor should always follow it. No matter how young or old you are, even if you can take the risk of putting all your investments under one roof, you should not. It may land you in troubled waters and to avoid that always lookout to diversify your investments accordingly.

The fact that we have so many mutual funds make it so easier for us to diversify our investments and plan a Long-Term Mutual Funds investments strategy and maximize our returns over a longer period of time.

Closing Notes

1. Long-Term Mutual Funds Investment is one of the best practices to follow if you are looking for safe returns and completing your goals.
2. There can be different Long-Term Portfolios for different Goals / Long-Term Objectives.
3. Long-Term Mutual Funds Investments are tried and tested options for investors in India.
4. Different types of Mutual Funds offer different kinds of risk/reward profiles. It completely depends on your Risk tolerance and Goal needs that you should invest accordingly.
5. Diversification is the key to a successful portfolio for Long-Term Mutual funds Investments.