FINANCIAL FREEDOM: HOW MUTUAL FUNDS HELP

FINANCIAL FREEDOM: HOW MUTUAL FUNDS HELP

A journalist friend told me a few months ago, that he liked working with a certain newspaper because they credited salaries at least two days before the 1st of every month. Unlike the previous job, he said, where the funds would land on or after the 1st. Did it make so much of a difference, I wondered loudly. He said, it gave him the comfort and freedom to plan his month ahead. Moreover, by crediting earlier, his organization gave him the feeling that they were on top of their finances. An important feeling in these times, I reckon. Be that as it may, the feeling of financial freedom is important.

At a very basic level, it is about knowing - at the beginning of the month - that I will end my month with a positive balance after paying off EMIs, expenses and credit card bills. The next level is where I believe I can buy something I have desired for the family or take a holiday without back-ended credit card misery. Or,  if you are more conservative, paying off old loans.

Acquiring financial freedom in my experience usually comes from income or savings beyond the monthly salary, whether you work for someone or are a self employed professional. Note that, freedom means the feeling that you have assets growing somewhere and not necessarily the cash in hand to spend every month.

There are very few ways to get here. By investing in equities, real estate or gold. The second involves a high upfront payment and considerable maintenance hassle. Moreover, transaction costs are high and complex. Gold is tough to bet on, it has been downhill in recent months by the way. So has real estate in some parts of India. Which leaves the former. And the only way I know into equities is through Mutual Funds.

As has been explained in an earlier article, Mutual Funds are a vehicle that lets you access all forms of assets of investments. It is not as much an asset class but a very well-organized way to invest across multiple assets.

TIME HORIZON

My own experience tells me that investments need time to grow. Don’t be swayed by those who tell you of multi-baggers in weeks and months. Not because it can’t be done but the chances are slim and opportunities few. And downsides higher. As some advisors will tell you, if you wish multiple harvests in a year, you need to sow multiple crops. Similarly, money has to spread across assets based on your needs for it. The longer you give a chance for it to grow, the better.

The power of compounding can make a significant difference to the money set aside for a 15-year period against 5 years.

SIP

Systematic Investment Plans or SIP plans offered by Mutual Funds allow the power of compounding efficiently. You set aside as much as you can each month and put it into SIPs. Your money is invested according to the asset class you opt for. A disciplined approach to investment through SIPs could help you accumulate enough money to meet your ideas of financial freedom.

As has been explained in an earlier article, MFs are a vehicle that lets you access all forms of investment assets.

Freedom is relative. Just like happiness. What you think is freedom may not be what I want and vice versa. For some, not working in a regular job and still having a regular income is financial freedom. For others, having a second income through investments could be the idea.

Happy Investing