A guide to create corpus for medical needs with mutual funds

Careful planning for medical expenses is a vital part of managing finances, directly influencing both well-being and financial stability. In the current environment of increasing healthcare costs, adopting a thoughtful approach to handling medical expenses is crucial. This proactive strategy protects one's health and plays a key role in avoiding financial strain caused by unforeseen medical emergencies. In the specific context of India, where healthcare costs are consistently rising, comprehending and getting ready for these expenses becomes even more important.

• Table of contents

1. Understanding the need for a medical corpus
2. Why choose mutual funds for medical needs?
3. Steps to create a medical corpus with mutual funds
4. Understanding medical expenses
5. Factors affecting the corpus
6. How to build a corpus for medical expenses?

Understanding the need for a medical corpus

A dedicated medical corpus is essential due to rising healthcare costs and health insurance limitations.

Rising healthcare costs:

Medical inflation outpaces general inflation, causing escalating treatment and medication costs.

Health insurance limitations:

Coverage gaps like exclusions, deductibles, and co-pays can leave significant expenses uncovered. Denial of claims or restrictions on pre-existing conditions can result in substantial out-of-pocket costs.

Other reasons for a medical corpus

Unexpected emergencies require immediate, significant expenses. Long-term care needs may not be fully covered by insurance.

A medical corpus can also cover expenses beyond insurance, such as cosmetic procedures, alternative therapies, and travel costs for treatment.

Why choose mutual funds for medical needs?

Mutual funds offer several advantages for building a medical corpus due to their growth potential and flexibility.

Growth potential

Equity-oriented funds can provide relatively better return potential, helping your medical corpus grow faster to offset rising healthcare costs and inflation.

Diversification

By investing in a mix of securities, mutual funds aim to spread risk across various companies and sectors, reducing the impact of losses in any individual asset.

Professional management

Fund managers use research and expertise to manage investments, seeking potentially better returns than individual investors might on their own.

Flexibility and accessibility

Mutual funds allow you to start with small amounts through SIPs and offer easy liquidity, though some funds may have lock-in periods.

Steps to create a medical corpus with mutual funds

Building a medical corpus involves careful planning and strategic investments to meet future healthcare needs.

1. Determine your medical corpus goal

Estimate future healthcare costs based on age, family medical history, and potential future medical needs. Factor in inflation as healthcare costs rise faster than general inflation.

Set a realistic target by determining the total amount needed for your estimated healthcare expenses.

2. Determine your investment horizon

Timeframe: Assess how long you have to build your medical corpus.

Longer horizons allow for more aggressive investments, while shorter horizons may require more conservative options.

3. Assess your risk tolerance

Comfort with market fluctuations: A higher risk tolerance may allow for equity-oriented funds, while a lower risk tolerance may necessitate more conservative approaches like debt funds.

4. Choose a suitable mutual fund scheme

Equity funds offer higher growth potential but higher risk, suitable for long-term goals.

Debt funds are more suitable for short-term goals and lower risk tolerance.

Hybrid funds balance risk and return, investing in a mix of equity and debt instruments.

5. Start investing regularly

Systematic Investment Plan (SIP): Regular, fixed investments help average out market fluctuations and build discipline.

6. Monitor and rebalance

Regularly review portfolio performance and adjust investments to maintain your desired asset allocation.

7. Seek professional advice

Consult a qualified financial advisor to tailor your investment strategy and ensure it aligns with your goals.

Understanding medical expenses

Due to the increasing healthcare costs in India, being ready for unforeseen medical bills becomes crucial. A report from the National Sample Survey Office (NSSO) highlights that approximately 86% of rural households and 82% of urban households in India lack healthcare insurance. The unpredictability of health issues underlines the importance of planning for medical expenditures.

Creating corpus with mutual funds can be a good way of ensuring that there are enough funds to cover unexpected medical expenses. You can choose a suitable mutual fund for your corpus by first defining your financial goals, assessing your risk tolerance, and monitoring your investments.

Factors affecting the corpus

Several factors can influence the amount of money set aside for medical needs, and these include:

Rate of return: The rate of return is a crucial factor impacting your medical fund. A relatively higher rate of return means more earnings on your investments, positively influencing the overall amount available for medical expenses.

Investment amount: The sum of money you invest in mutual funds, known as the investment amount, directly correlates with the corpus generated. A larger investment amount may result in a higher corpus for medical needs.

Investment tenure: The duration for which you keep your money invested, termed as the investment tenure, plays a significant role. A longer investment tenure may contribute to a larger corpus for covering medical expenses.

Frequency of investment: How often you invest, or the frequency of investment, impacts the growth of your medical corpus. More frequent financial investments may lead to a higher accumulated amount for medical needs.

Inflation: Inflation, the rise in the general level of prices for goods and services, can affect your investments. Over time, inflation has the potential to diminish the real value of your medical fund.

Market volatility: The ups and downs in the market, known as market volatility , can influence your investment returns. A volatile market may lead to fluctuations in the value of your investments, affecting the overall corpus for medical expenses.

How to build a corpus for medical expenses?

To create a medical corpus, start by estimating potential healthcare expenses based on age, medical history, and lifestyle. Adjust these estimates for inflation, as treatment costs tend to rise with time. Next, decide on a time frame and determine how much you can systematically invest each month. Remember that investment time frames may differ for younger individuals planning for retirement, versus older individuals preparing for imminent medical needs.

Always prioritise easy access to funds in case of a medical emergency by choosing highly liquid schemes. Consider using equity or hybrid mutual funds for long-term growth potential, complemented by debt-oriented funds for relative stability. Regularly review your progress and rebalance as needed to ensure you stay on track. Ensuring adequate health insurance coverage can complement your investment strategy. By following these steps, you can build a sufficient corpus to tackle future medical expenses.

Conclusion

Proactive planning for medical expenses is not only a prudent financial strategy but a crucial step toward ensuring both physical well-being and financial stability. As healthcare costs continue to rise, particularly in the context of India, where a significant portion of households lack healthcare insurance, the need for understanding and preparing for these expenses becomes paramount.

Investing in mutual funds, including Systematic Investment Plans (SIPs), carries inherent risks. Past performance does not guarantee future results. It's important to consider your financial goals and risk tolerance before making investment decisions. Consult with a financial advisor to ensure mutual funds SIPs align with your individual circumstances and objectives.

Read Also: Why should you invest in a health and wellness fund?

Establishing a dedicated corpus through mutual funds presents a practical solution to address unforeseen medical bills. By aligning financial goals, assessing risk tolerance, and monitoring investments, individuals can tailor their mutual fund strategy to meet the specific requirements of their medical fund. In preserving the pillars of our well-being—both health and financial stability—thoughtful and strategic planning is essential.

FAQs:

What is the process for creating a corpus for medical needs using mutual funds?

Begin by assessing your medical expenses, set a financial goal, choose suitable mutual funds based on risk tolerance, regularly invest, and monitor the performance of the funds.

How can I ensure the safety and growth of the corpus over time to meet future medical expenses?

Opt for a balanced portfolio, review and rebalance periodically, stay informed about market trends, and consider professional financial advice to make informed decisions regarding your medical corpus. Consult a financial advisor if required.

What is a medical corpus?

A medical corpus fund is a financial reserve set aside for medical expenses, ensuring coverage for unforeseen medical emergencies or long-term healthcare needs. To build it, consider estimating potential costs, selecting a balance of investments, contributing regularly, and adjusting your plan periodically.

Is medical corpus better than health insurance?

A medical corpus is not a substitute for health insurance but complements it. While the corpus offers flexibility and control over funds for unforeseen medical expenses, health insurance provides immediate coverage for high medical costs. Both should be used together to ensure comprehensive financial protection.

How to generate a corpus fund?

To build a medical corpus, estimate future medical expenses, choose suitable investments (like savings or equity funds), and contribute regularly through SIPs. Regularly review your strategy, leverage tax benefits, and consider health insurance for immediate coverage. Seek professional advice for personalized planning and to maintain a disciplined investment approach.

How to create 1 crore corpus?

To build a Rs 1 crore corpus, start by setting clear goals and a timeframe, then determine how much you can save monthly. Choose appropriate investment options like equity and debt funds, and use SIPs. Leverage compounding, rebalance regularly, and consult a financial advisor for guidance.

What is a mutual fund corpus?

For an investor, "corpus" in mutual funds refers to the total value of their investments across different schemes, representing the accumulated wealth built over time. It includes the value of all units held in equity, debt, and hybrid funds.

Which types of mutual funds are suitable for creating a medical corpus?

For creating a medical corpus, a balanced investment approach focusing on long-term growth and stability is key. Debt funds (short-term and long-term), hybrid funds (balanced and conservative), and equity funds (large-cap and mid-cap) offer suitable options based on your risk tolerance and time horizon.

How much money should I invest to build a sufficient medical corpus?

Determining the amount for a sufficient medical corpus depends on personal factors like age, health history, lifestyle, geographic location, and desired retirement lifestyle. Estimating expenses for routine care, illnesses, and long-term care is important, along with considering inflation.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.