Financial freedom is a stage of life where you don’t work for money; instead, money works for you. In other words, financial independence is a state in which you have adequate monetary resources to meet your expenses while following your passion for the rest of your life.

It seems too good to be true. But what would happen if this became a reality? In fact, financial freedom is achievable and possible throughout everyone’s life, provided they invest early, choose the right investment product and religiously follow the basic investment parameters with emphasis on the objectives.

Mutual funds: a force to be reckoned with

Mutual funds tend to stand out when it comes to long-term, inflation-fighting, risk-adjusted wealth creation. Transparency, liquidity, professional corpus management and ease of investments make mutual funds a suitable and effective investment vehicle to achieve financial freedom.

Although mutual funds are very effective in facilitating wealth creation, here is a quick guide for investors on how to get the most out of investing through mutual funds.

a) Start early: The earlier you start, the better the results. Ideally, one should start investing in mutual funds from the first paycheck. This helps you stay longer, which greatly improves the cumulative impact. It should be noted that time in the market is far more important than market timing. Be patient and disciplined to be a successful investor.

b) Choose equity schemes: When you are young, your risk appetite is relatively higher. Thus, it is strongly advised to choose an equity-oriented mutual fund, preferably a diversified equity fund. Historical trends suggest that stocks tend to deliver a CAGR of around 15% over the long term. With active management of the fund, returns could be higher than those of key benchmark indices.

c) Use a combination of SIP and lump sum: Systematic Investment Plan (SIP) is the most suitable way to invest in mutual funds, especially when you are investing for the long term. This way of investing ensures that you invest small but consistently over decades. SIP helps you better distribute your costs and allows you to benefit from different market cycles. A 10% top-up is recommended as it automatically increases your monthly SIP contribution every year. Generally, the SIP amount should increase proportionately as income increases. In addition, markets experience different cycles: corrections, rallies and consolidations in a context of volatility. Investors can use corrections and volatility to invest additional amounts to improve the cost averaging of investments.

d) Opt for systematic withdrawal: As one gets closer to one’s finances, it becomes imperative to review and restructure the portfolio if necessary. Here, be systematic even when it comes to reaping the benefits. You should consider opting for tools like a systematic withdrawal plan (SWP) instead of withdrawing the entire corpus. Depending on your needs, you can set a monthly withdrawal limit which will be automatically deposited into your bank account on a monthly basis.

To achieve long-term financial goals like retirement or create secondary cash flow, an investor can consider using features that beautifully combine the power of SIP and SWP. One option to consider here is Freedom SIP, a helpful resource for paving the way to financial freedom.