Financial freedom: Expert explains how mutual funds can help attain financial independence

Experts opine that mutual funds can play a significant role in helping people attain financial freedom, as it can empower them with wealth creation.

Mutual funds can help an investor accumulate wealth and achieve long-term growth. (Image: Freepik)

Financial freedom is of utmost importance, especially in the rat race that is today's corporate world. Dynamic economic situation, rising inflation, rapidly increasing expenses make attainment of financial freedom the ultimate end goal for all. Financial freedom can also be defined as power of having the ability to take money decisions without stressing too much or being prepared for unexpected expenses — something we all crave.

Experts opine that mutual funds can play a significant role in helping people attain financial freedom, as it can empower them with wealth creation. Furthermore, Abhinav Sharma, Head-International Business, Tata Asset Management Company, opines, "Diversifying your investments and having a long-term perspective are key principles for success in mutual fund investing on the path to financial freedom."

Here are four reasons shared by Abhinav Sharma, to explain how mutual funds can contribute to achieving financial freedom:

• Set both long-term and short-term goals: Mutual funds can be versatile investment vehicles that can be used for both short-term and long-term financial goals, provided one chooses the right types of funds that match the time horizon and risk tolerance associated with each goal.

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• Wealth accumulation – starting early is the key: Mutual funds can help an investor accumulate wealth and achieve long-term growth. "The key to doing this is starting early and staying disciplined over the long term. Since stocks have historically offered higher potential returns compared to other asset classes, equity mutual funds can play a significant role in achieving substantial growth over the long term," Sharma adds.

• Professional management: There are specialists in every profession, and mutual funds are no exception. Mutual funds provide small investors with fund managers who manage the schemes and take informed decisions on when to buy and sell. The fund managers research and analyse potential investment opportunities. "These professionals make informed decisions on behalf of investors, saving you the time and effort required to research individual stocks or bonds. Their expertise can lead to better investment decisions and potentially higher returns," Tata Asset Management Company's Head-International Business adds.

• Risk mitigation and preservation: Mutual funds may also help protect an investor's wealth from inflation and market volatility. He says that inflation can erode the purchasing power of money over time, but investing over the long term can provide potential safeguards. Additionally, he adds that hybrid funds, which invest in a mix of stocks and bonds, can offer a more conservative approach that seeks to balance growth and preservation.

However, alongwith all this, he adds that while mutual funds offer many advantages for building wealth and achieving financial freedom, it's essential to choose the right funds that align with one's goals, time horizon and risk tolerance.

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