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What is a Good Route For Long Term Wealth Creation?

by Tavaga Invest

By: Tavaga Research

This is a common question people have, everyone wants to invest their money and grow it but no one really understands how to. Depending on what your needed outcome from the investment is, diversification of assets is usually a good decision in the long term. The best form of investment is SIPs because it not only creates a habit of regular saving but also helps your investment be spread over market cycles. This helps make sure you have not bought all your investment when the market was too highly-priced, the balance helps create a better return over time. Timing the market is hard, and getting it right every time is even harder therefore SIPs are a food way to create long term wealth.

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In order to create wealth, the quickest way is good stocks, however, the risk is highest in this method unless one is sure of which stocks to invest in(which is very rare). Mutual funds and ETFs provide asset diversification even with one single unit of purchase, hence lower risk since it is spread out. Therefore, unless one is sure about the stocks or has enough knowledge of the market they should ideally pick Mutual Funds or ETFs, and based on risk appetite the underlying assets for these can be equity, debt, gold, etc.

We would suggest picking a financial asset class for long term wealth creation, as well as to meet other goals, as Exchange Traded Funds. Exchange-Traded Funds offer the diversification of a mutual fund, coupled with lower expense ratios due to its passive nature. There is a minimum expense ratio since ETFs track a market index and don’t need active management once they have been listed, they help give their buyer the market return.

Additionally, even with Mutual Funds, the buyer must know what mutual fund to buy because the market is flooded with options and not all of them perform well, most cannot even provide market returns. Regular mutual funds are more expensive than direct funds that already have a high expense ratio due to commissions and AMC charges. If a buyer understands the market sentiment and knows what sectors to invest in or which mutual fund to pick based on its underlying assets, they can also invest in stocks with that knowledge depending on the monetary funds they have access to.

Performance comparison between SBI Bluechip Direct v/s Regular Mutual Fund

Source: Google Finance | Data updated as of 15th July 2020

Therefore, we would recommend that one should depend on their knowledge of the market and the time they have at hand to make investment decisions pick their SIP model. For safe market returns, there are ETFs, for higher returns with high risk are stocks, and for people who have lower funds and want diversification with active management, there are (direct) mutual funds.

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