Mr Saurabh Mehta is a 45-year-old married man who lives with his wife and two daughters, aged 14 years and 11 years, respectively.
He has a stable government job, the income from which comfortably covers his current expenses. Since all his current needs are being met by his income, he has never really considered investing in mutual funds.
However, his children are now growing up and he is now faced with the prospect of funding their higher education and also creating a corpus for their marriage.
Additionally, he also understands that he needs to start saving for his retirement. He believes that because he is late to start saving for his retirement, he will have to invest a higher proportion in risky assets, which leaves him confused.
Are you someone in a similar situation and confused about how to begin your investment journey
The first step to begin exploring your investment journey is to start educating yourself about the way to investing mutual funds. Read about different types of mutual funds and the purpose they serve.
Familiarise yourself with mutual fund investing jargon and read as much as you can about the subject.
There are many online resources such as Groww that present complex mutual fund concepts in a simple manner. However, while it’s good to be an aware and informed investor, not having complete knowledge on the subject shouldn’t prevent you from going and investing.
There is so much involved in mutual fund investing that it is very difficult to have complete mastery over the subject in a short time. So don’t allow this to be a roadblock to your investing journey and avoid further delay.
The second step in your savings and investment journey is determining your risk profile. Risk profiling is the process of arriving at the optimal level of investment risk that an individual can absorb, considering his/her ability, willingness and need to take a risk. Select the mutual funds that complement your risk profile and the goal you want to achieve.
Based on your unique risk/return profile, you can arrive at an asset allocation mix at any age. Whether you are 40 years, 50 years, 60 years or even older, you can create an asset allocation strategy that can help you meet your goals and tide over your current expenses.
The asset allocation mix will tell you the percentage of assets you need to invest in debt instruments, the percentage of assets you need to invest in equity investments and the percentage that you need to allocate to other investment options.
Whether you start saving for your retirement early on or in your later years, mutual funds can always prove to be a good investment option. They offer investment options across the risk/return spectrum and give investors an opportunity to build diversified portfolios that can weather market volatility and help them achieve their financial goals.
An example of asset allocation according to the risk-return profile is shown below
*These asset allocations are indicative. It will change as per an individual’s profile.
In life, age is just a number. You have needs, as well as, aspirations in every phase of your life. A robust financial plan can help you reach those aspirations and fulfil those needs, irrespective of your age.
While it is important that you start your savings and investment journey as early as possible, it is more important to start. With the right asset allocation strategy, you would surely be able to enjoy better capital appreciation of your investments.