What is wealth? What purpose does it serve?
Many answer these questions as “living a life of one’s dreams”, or “not having to worry about money”, or “having financial freedom”. Being wealthy means having enough money to spend for one’s responsibilities and dreams.
However, for all the long term expenses, one must never forget one major factor – “Inflation”. As the name suggests, inflation is a phenomena that inflates the cost that you will incur to fulfil your life goal when the time arrives to fulfil it.
Diversified equity funds offer the opportunity to create wealth over the long term at reasonable levels of risk. The risk associated with equities gets controlled with equity Mutual Funds due to three factors
- The expertise of the professional fund manager who manages the fund
- Diversification of risks due to the investments made in a basket of securities
- Investing for the long term which lowers the impact of short term volatility
Although it’s true that equities as an asset class offer investors the opportunity to create wealth, it is important to keep in mind that equities as an asset class is volatile over shorter time frames. Therefore, you need to invest for the long term.