Investment Blog

Indeed, a common and relevant question when building an investment portfolio.

The quick answer is:

Give preference to equity mutual funds when the goal is- “Wealth creation or preservation but you must have a longer time horizon”.

You will be able to create wealth by investing in financial products that beat inflation over the long term.

FDs may not even help in wealth preservation if you fall into a higher tax bracket (20% & above).

However, Equity Mutual Funds have the potential for higher returns and a higher probability of winning in a race against inflation over the long term.

Few scenarios where we have recommended our clients to move funds from FDs to Equity Mutual Funds:

#1: Large sums invested in FDs. But money is required after 5 years, so exposure to equity asset class was recommended to achieve optimum asset allocation mix.

#2: FDs were done at very low rates. E.g. 6-6.5%. These are subpar investments to continue given the current inflation scenario.

#3: Client(s) have goals like retirement & children’s education and the time horizon is more than 8-10 years. Money needs to grow at a faster rate to accumulate a large corpus. Keeping money in FDs will not do the job here.

Managing volatility is a big issue for first-time movers from FDs to MFs. Setting the right expectations is key. We need to keep reminding ourselves that wealth creation is a long-term process that requires patience, discipline, and a well-planned investment strategy.

Let me know if I can help you with your unique situation.

Originally posted on LinkedIn: www.linkedin.com/shivanichopra