How to become a super rich dad or mom? Here are 7 best mutual fund categories to invest your money

By: | Updated: February 22, 2017 11:44 PM

You might have seen your father talking about finances and saving money, but are you aware that your mother also has been keeping some money aside – possibly every month – in a bid to meet any financial emergency in the future?

mutual fundsThe only difference is that fathers save their money in insurance and bank accounts while mothers keep their savings either at home or in a locker.

You might have seen your father talking about finances and saving money, but are you aware that your mother also has been keeping some money aside – possibly every month – in a bid to meet any financial emergency in the future?

True, it’s not only fathers who save money but mothers also do so. Yes, that may be a small amount as compared to fathers’ savings, but then they also save in one way or the other. The only difference is that fathers save their money in insurance and bank accounts while mothers keep their savings either at home or in a locker. Eventually, do their savings make them super rich or just rich? Let’s check it out:

Suppose mothers are saving Rs 5000 per month for 10 years and keeping the money in their lockers or simply at home. In that case the total savings made by them at the end of the 10th year will be only Rs 6 lakh.

On the other hand, fathers are saving Rs 5000 a month in a bank account where the assumed rate of return is 4% (almost all banks are providing the same return irrespective of adhering to certain clauses). If they are saving this amount for the last 10 years, that means they also saved Rs 6 lakh, which by the end of 10th year will become approximately Rs 7.38 lakh. In this way, fathers tend to save approximately a lakh rupees more than mothers.

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But if you are a smart saver and you invested your Rs 5000 in mutual funds for the last 10 years (assuming a rate of return at 18%), then the total amount accumulated at the end of the 10th year will be approximately Rs 16.8 lakh, which is almost the two times of fathers’ savings. Savings in mutual funds gives you the benefit of compounding and rupee cost averaging principle.
In all the three conditions, you have observed that the amount invested per month and the time period is the same, but the accumulated amount at the 10 year is the highest in the case of doing savings through mutual funds. However, doing saving in mutual funds in lieu of cash/bank savings is only advisable when you are taking help of a financial planner because these schemes are subject to market risk which requires a regular review over a particular period of time.
Some of the best mutual fund categories which can provide you higher returns on your savings are:

ELSS Funds

This fund gives you a dual benefit. It helps in providing capital appreciation and tax savings. You can get approximately 12% to 15% of return while investing in this fund. Investment should be made in lump sum amount because these funds have a lock period of 3 years. There is no limit to invest under such category of fund. However, you will get the tax benefit up to an investment of Rs 1.5 lakh under section 80C of I-T Act.
Liquid Funds
Under liquid funds, money is especially invested in securities which have a maturity of up to 91 days. Assets which are invested in this category are not held for a long time as liquid funds do not have a lock-in period. Therefore, they can be redeemed whenever you are in need of money. You can generate approximately 7% to 9% of return adhering to the market conditions. Returns are not guaranteed as the performance of fund depends upon the market volatility.

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Diversified Funds

It is an investment fund which contains a wide variety of sectors so as to reduce the amount of risk in the fund. Actively managing the diversification helps in preventing the events that can affect one sector from affecting an entire portfolio of an investor. Investing in the schemes offered by diversified funds reduces heavy losses if market conditions go wrong. These are good funds to invest money. They also provide better returns than liquid funds.

Balanced Funds

A balanced fund is a fund which combines debt and equity stocks in an equal proportionate, where there is a bond component or a money market component. These are a type of hybrid funds which stick to a relatively fixed mix of stocks and bonds mainly in equal. These funds are beneficial for those who are not able to decide whether to go for an equity scheme or debt scheme. It also provides good returns compared with liquid funds

Large cap Funds

Lap cap funds comprise of blue-chips companies which are having large market capitalization. However, there are no such criteria of being a large cap because it varies from company to company considering their huge market capitalization.
This fund provides stability and sustainability with lower returns as compared with diversified funds and small /mid cap funds under normal growth conditions. To invest in these type of funds there are a variety of mutual fund schemes available in the market. These funds also help in generating a good corpus for you, when investment is done for a longer term (at least for 10 to 15 years).

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Flexi cap Funds

Flexi-cap funds are a type of diversified equity funds where a certain amount is compulsory to invest in equity stocks across market capitalisations irrespective of investing in large cap, mid cap, and small cap stocks. They provide returns slightly higher that diversified under normal growth conditions.
Flexi simply means that if a stock from a given segment is not performing, then the fund manager can shift the entire corpus to an alternate fund. Thus, flexi-cap funds can give you an opportunity to get most of the benefit from the high return giving fund, leaving from a nonperforming one at any time.

Mid/Small cap Funds

These funds are very risky in nature but they provide exceptionally high returns because these funds comprises of sectors which are from small and emerging companies. Generally, these companies have low market capitalization. Someone who is very aggressive in taking risk can make investment into such category of funds. These funds offers highest returns under normal conditions as compared to other categories of funds. It is one of the best fund to generate money for your long term goals.

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