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Know How HNIs are Using Mutual Funds to Grow Their Wealth
Posted on Tuesday, January 16th, 2024 | By IndusInd Bank
For decades, High Networth Individuals or HNIs have preferred to invest in physical assets, direct stocks, and equity with an aim to maximise returns. However, changing the financial landscape, most of these individuals are actively moving towards financial assets for wealth creation.
Indeed, mutual Funds have emerged as the biggest player in this field, offering HNIs immense growth and wealth-creation opportunities. Mutual funds provide higher liquidity, diversification, and tax efficiency as compared to other investment options.
Here’s how HNIs are leveraging mutual funds for wealth creation.
1. Disciplined Investment Approach
Long-term wealth creation and investment planning take time, and HNIs have found the perfect solution in mutual funds. Mutual funds encourage diligent investments over a long period of time to meet their financial goals.
With Systematic Investment Plans, HNIs can invest in MFs at regular intervals where the discipline allows them to time the market before every investment. This way, they are able to grasp every investment opportunity that adds to their wealth. In fact, SIP investment offers them risk-adjusted returns and helps them make the most of their investments even in a bear market.
2. Setting Financial Goals
Mutual funds are relatively more flexible and secure than other financial products, but they aren’t entirely risk-free. However, a goal-based approach is what helps HNIs navigate the market’s ups and downs and get the most out of their investment.
It is best to set a financial goal and a time frame within which you want to achieve that goal. This is also an easy way to plan your investment over time – to decide if you wish to make lumpsum investments or go with SIP.
Moreover, a goal-based approach helps them choose MF investment options from a long-term perspective, which only contributes to wealth creation.
3. Diversifying the Portfolio
Mutual funds offer an excellent opportunity for HNIs to diversify their portfolio. Many HNIs achieve the desired portfolio diversification by investing in a variety of options, including hybrid funds, liquid funds, debt funds, tax saving schemes, and more, depending on their risk preference and investment goals.
A smartly diversified portfolio helps protect investments against market volatility by building a healthy balance of risky products with stable and safe assets.
4. Choosing Tax-Efficient MFs
Since tax planning is a critical aspect of smart financial planning, investing in tax-efficient mutual funds is another way HNIs invest for wealth creation. Mutual funds offer great returns in two forms- capital gains and dividends.
While the dividend is added to their taxable income and taxed at the respective rate, capital gains on equity mutual funds are taxed at a flat rate of 15%. Here you stand to make long-term capital gains on selling MFs after one year of holding period.
Investors in higher tax brackets, like High Networth Individuals, enjoy greater tax benefits than fixed-income investments by investing in mutual funds.
The Bottom Line
Mutual funds have emerged as an excellent investment opportunity for investors of all types. Given their high liquidity, the flexibility of investment, and risk-free returns, mutual funds offer great scope for wealth creation to HNIs in India.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
