When it comes to investing in mutual funds, one of the most popular options among investors is Equity Linked Saving Schemes or ELSS. ELSS offers a tax-saving benefit to investors, along with the potential to earn good returns in the long term. However, as with any investment, it is crucial to have a well-diversified portfolio that includes different types of mutual funds. In this blog, we will discuss the role of sector specific ELSS in a diversified portfolio and how they can be used in combination with other funds like debt funds and SIPs.

What are sector specific funds?

Sector specific ELSS funds are mutual funds that invest in a specific sector or industry. For example, some ELSS funds may invest in the healthcare sector, while others may focus on the technology industry. By investing in a sector specific ELSS fund, investors can take advantage of the growth potential of a particular industry. However, it is essential to note that investing in a single sector can be risky, as any adverse developments in that industry could negatively impact the fund’s returns.

How can such funds help in wealth creation?

In a well-diversified portfolio, sector specific ELSS funds can play an important role in enhancing the overall performance. By combining different sectors’ funds, investors can achieve a more balanced exposure to the market. For example, if an investor has a well-diversified portfolio that includes funds in sectors like healthcare, technology, finance, and energy, they can capture the growth potential of different industries while minimizing the risks of sector-specific investments.

Moreover, combining sector specific ELSS funds with other types of mutual funds like debt funds can help investors reduce the overall risk in their portfolio. Debt funds invest in fixed-income securities like bonds and treasury bills and offer a steady source of income. By combining sector-specific ELSS funds with debt funds, investors can balance their portfolio and ensure that they have a mix of high-risk, high-reward investments and low-risk, stable investments.

Systematic Investment Plans or SIPs are another way to diversify your portfolio. SIPs allow investors to invest small amounts of money regularly and build their portfolio over time. By combining SIPs with sector specific ELSS funds and debt funds, investors can achieve a well-diversified portfolio that offers both growth potential and stability.

To sum it up

Sector specific ELSS funds can play an important role in a well-diversified portfolio. By combining these ELSS funds with other types of mutual funds like debt funds and SIPs, investors can achieve a balanced exposure to the market while minimizing risks. However, it is crucial to remember that investing in mutual funds carries risks, and investors should always consult a financial advisor before making any investment decisions.

An SIP (systematic investment plan) is a prudent financial mode using which you can easily invest in the mutual fund of your choice. Through this route, you can invest a predetermined amount at fixed time periods in a mutual fund. This route makes use of an electronic clearance service (ECS) mandate to automatically deduct a predetermined amount from your savings account at fixed intervals, say, monthly, quarterly, half-yearly or yearly as per your instructions in the selected scheme. Continue reading to understand ways to strategically meet your different financial goals.

How can you use a mutual fund SIP to fulfil your different financial goals?

• Early work phase

This is a phase that may cover an age range of anywhere between the early 20s and late 20s. In the case you are in this stage, then there are high chances of you being unclear regarding your financial goals, particularly those with long-term time frames. Remember that this is the best phase, to begin with, your investments for your long-term goal to create massive wealth through the power of compounding using SIP mutual funds.

Starting your SIP mutual fund investment at this stage will also allow you to become financially disciplined and responsible. At this phase, one of the important long-term financial goals, you must eye on is corpus creation for your post-retirement life. Starting your retirement investments at this phase will allow you to generate a higher corpus over a long time-period with a small investment amount. For example, if you start mutual fund investment through SIP at 21 years with an investment amount of Rs 1,000 per month at an annualised rate of 13 per cent per annum, you will generate a retirement amount of Rs 1.94 crore by 60 years of age. However, if you begin your SIP investment in a mutual fund at 50 years, you will need to invest a monthly amount of Rs 75,000 in the same fund generating the same return rate to form the same retirement corpus of Rs 1.94 crore.

• Middle-aged or sandwich phase

This stage covers time frames between the 30s and 50 years. At this phase, all the family obligations may be upon you ranging from taking care of your ageing parents to paying your kid’s tuition fees to repaying EMIs towards a home loan or car loan. Once your child starts going to school, you must ensure to start investing in a preferred mutual fund to generate a higher corpus for your kid’s higher education costs within the deadline.

Also, you must start investing to create an adequate corpus for your child’s marriage. To attain this goal also, you must make sure to start your investment in a mutual fund via SIP. Besides these, simultaneously make your short-term goal investment through SIP in debt funds. Short-term financial goals may include corpus creation to build an emergency fund, arrange a vacation trip abroad, etc. A debt fund is a recommended instrument to meet your short-term goal as it offers satisfactory returns and capital preservation features.

• Pre-retirement phase

This is a stage that ranges from your early 50s to retirement. Your major focus at this stage must be to attain your required retirement corpus. As you may have the highest income at this stage and may be free of any debt obligation, you must ensure to invest bigger investible to attain your retirement corpus through SIP.

Also, as you approach your retirement age, say once you are 2-3 years away from retirement, it is advised to liquidate your retirement investment in an equity mutual fund via SIP to invest in short-term debt mutual funds. This measure is recommended to save your retirement fund from any market volatility. However, instead of completely switching to debt investment from an equity fund, you must opt for a steadier approach where you need to calculate the expected annual expenditures during your post-retirement. Once you are done, you must start transferring this computed amount periodically before reaching the age of retirement. Using this approach will help you to maintain adequate exposure to equity during your retirement days also. This would lead to higher inflation-adjusted returns and reduce the risk of witnessing a shortage in your retirement corpus during your retirement years.

Ending note

So, you see, by periodically investing a small amount systemically through an SIP in a mutual fund, you can attain your long-term goals easily. Note that to make the most out of your long- and short-term financial investments, you must use an online SIP calculator. By using this calculator, you can get an accurate and quick outcome on the returns you may expect to receive based on your investment.

You’ll hear a lot of different advice regarding retirement planning these days. Depending on who you ask, you get a different answer each time. It is because retirement planning is highly individualistic. It will look different for everyone and can depend on several factors.

Investing in a retirement plan through an insurer is one way to plan your retirement. However, the best retirement plans are ones that have been customised to care for your unique expenses post-retirement.

5 Golden Rules Of Retirement Planning

Despite everyone having a different opinion of how you should be planning for retirement, there are five standard rules people usually agree on.

• Determine Your Retirement Expenses

When planning your retirement, try visualising or writing down what you want your post-retirement life to look like. This can help you narrow down what you need to do and the expenses you need to consider. Remember to keep the inflation rate in mind when calculating your future costs.  A good retirement plan takes this into account.

For example, Tata AIA pension plans offer guaranteed returns on their retirement plans. In addition, their retirement calculator allows you to calculate the funds and savings you need during your retirement years. It will give you clarity on how much money you should save for yourself and your family.

• Start Planning Your Retirement Early

Most experts agree that starting your retirement planning early is a good idea. It’s suggested that you should start planning from the first day you start earning. The easiest way to do this is by investing 12% of your salary, with an equal contribution from your employer, into your Provident Fund account.

The best part of an Employee Provident Fund (EPF) is that it is mandatory. It acts as a default retirement plan for most individuals. Remember, the later you start, the more you will have to save.

• Invest Wisely

There are many ways to do this. As a general rule, you should save 10% of your income for retirement. This 10% will be from your total income at any given point.

So if your income gradually increases in the future, you should maintain that 10%. It will ensure that your retirement funds don’t fall short of your requirements. So each time you get a raise, consider allocating half of it to your savings.

• The 4% Rule

A big challenge many retirees face is ensuring that they don’t outlive their savings. This is entirely understandable. It is due to two main factors: rising living costs and an increase in life expectancy. Enemy number one would be rising inflation rates.

The 4% rule is commonly used in retirement planning as a workaround for this issue. It states that you can withdraw 4% of your savings during your first year and adjust that percentage for inflation every following year. This method ensures you don’t run out of money for at least 30 years.

However, this rule may not work for everyone, especially if you expect your spending habits to change during or after retirement. In addition, this rule is based on asset allocation, where you invest 60% in stocks and 40% in bonds. So if you’ve chosen other investment methods, this rule may not support you for long.

• Get A Retirement Plan That Suits Your Needs

Retirement plans from insurers often require you to invest a portion of your income into your plan of choice. The main objective behind these plans is to ensure regular income post-retirement.

Guaranteed pension plans with life cover are a popular choice with most people. These plans will provide you with a life cover and a steady income on maturity. Additionally, these plans are also eligible for tax benefits under Section 80C.

Conclusion

One of the best things about retirement is being able to reap the rewards of your hard work. Note that these rules aren’t set in stone. The main takeaway here is to invest wisely and choose a good retirement plan to fulfil your financial needs.

When it comes to investing, diversification is crucial. It entails distributing capital across many asset classes and investing in various securities within those asset groups. Diversification is intended to decrease risk by minimising the negative consequences of an entire asset class sinking. Furthermore, diversifying assets reduces the influence of any single investment on an entire portfolio. Diversification also helps to boost returns by providing exposure to diverse types of assets and enabling the capture of investment possibilities that would otherwise be ignored. Diversification is extremely important when investing a lump sum amount of money in an investment vehicle like mutual funds. Read on to find out more about the importance of diversification in lump sum investing and the ways to do that.

What is a lump sum investment?

A lump sum investment in a mutual fund is when you put a significant sum of money into a certain fund all at once. Often, lump sum investments are made using cash or profits from the selling of stocks, bonds, or other assets. Because the money is invested all at once and market timing is less crucial, this sort of investment plan has the potential to generate higher returns and advantages than investing smaller sums over time. Yet, because the investor is exposed to the market’s performance at the time of their contribution, lump sum investing might be riskier than investing smaller sums at regular periods.

Diversification in a lump sum investment

The primary reason for diversifying your lump sum assets is to decrease investment risk. Spreading your money across different asset classes will allow you to limit your losses if any one asset loses value. This implies that even if one sector suffers a setback, your whole portfolio will stay relatively stable and will not be completely depleted.

Furthermore, diversification allows you to invest in a wide range of asset classes & investment options like SIP, ensuring that your portfolio is not unduly reliant on any particular asset. Instead of depending entirely on the success of one asset class, you may profit from the performance of numerous asset classes.

Lastly, by diversifying your lump sum investments, you may capitalise on possible benefits from investing in several asset types. You may take advantage of any possible gains from any given asset by investing in several asset classes.

In order to optimise your profits, it is critical to diversify your lump sum investments across many asset types. Stocks, bonds, mutual funds, real estate, commodities, and foreign currency are some of the most prevalent asset groups. Each of these asset classes comes with its own set of risks and benefits, so it’s critical to do your homework and understand the various asset classes before investing.

Conclusion

Overall, diversifying your lump sum investments is critical for maximising returns while minimising risks. Spreading your assets across different asset classes ensures that your investments are independent of any single asset and that you may benefit from possible gains from numerous asset classes. Additionally, before investing, it is critical to understand the various asset classes since each has its own set of risks and benefits.