NEW DELHI: Investors frequently struggle with uncertainty regarding the length of their mutual fund investments. The duration of a mutual fund investment can vary depending on several factors, including the investor’s financial goals, risk tolerance, and market conditions.
Are mutual funds for short term? Are they safer if we invest for a longer period? How will they perform if the time horizon is longer? These are the most frequently asked questions about the duration of mutual fund investments.
So, in order to determine the time frame in which you want to invest in the mutual fund, you should know what your specific goal is as well as your risk tolerance. Because mutual funds offer a variety of products that are also distinguished by the time horizon over which they can be invested.
For example, when it comes to equity, there are large cap funds, mid cap funds, small cap funds, flexi cap funds, multi cap funds, and so on. Equity is indeed considered a high-risk, high-reward asset class. If you’re a risk-averse investor, it may not be the best fit for you. For those who do choose to invest in equity, a longer investment horizon of 5 years or more is generally recommended to weather market volatility. Investing through a mutual fund can also help diversify your portfolio and reduce individual stock risk.
Debt mutual funds invest in fixed income securities such as bonds and government securities and are considered a relatively safer investment option compared to equity funds. They offer different time durations, such as short-term, medium-term, and long-term funds, to cater to the varying needs and risk tolerance levels of investors. There are 16 type of debt mutual funds that offer different time durations. So you can park your money in various types of debt mutual funds for a period of time ranging from less than a year to several years. So mutual funds can offer a range of investment options for both short-term and long-term goals, such as money market funds for short-term savings, bond funds for intermediate-term investments, and stock funds for long-term growth. It’s important to align your investment goals with the type of mutual fund you choose.
Typically, a longer investment horizon of 5-10 years or more is recommended for mutual funds as they tend to have a relatively long-term investment outlook.
Source: ET Now
