It’s never too late or too early to start investment,
especially if it’s in mutual funds. While there may exist several different
investment vehicles in the market, mutual funds are for everyone, and entails
one of the safer options, especially in the current scheme of things in India.
A quick peek into the market will highlight mutual funds with multiple schemes
having a variety of combinations regarding investment horizon, risk-return,
asset classes, exposure, and tax-treatment. This makes it so important for new
as well as seasoned investors to stay updated. Here are some tips on how to
invest in mutual funds.
1.
Play to your risk appetite:
It’s a given fact that every mutual fund carries a
certain amount of risk, based on the investment objective, investment
methodology, and underlying securities. Liquid funds have the least, while
equity funds carry the highest risk. So amidst so many alternatives, choose the
one that fits your risk appetite.
2.
Make goals and invest accordingly:
While some investors are there to make a quick buck,
most follow the ‘invest and hold’ strategy. If you are in the latter group, you
will be able to maximize your profits over the course of the tenure, while also
reducing risk significantly. Usually, it is advisable to have a goal of at
least five years.
3.
Discipline is the key:
Most individuals starting out with investments in
mutual funds consider it as random betting. But that’s not how it should be.
Based on your financial plan, opt for regular and fixed investments. This
disciplined approach can be achieved through SIPs. SIPs leverage the power of
compounding and the benefit of rupee-cost averaging; thereby helping you in
generating greater wealth. You can take the help of a SIP and mutual fund calculator to select the best one
suiting your requirements.
4.
Don’t time the market:
More often than not, investors feel that timing the
market is essential to accrue wealth and achieve greater returns. On the
contrary, it is the time in the market that matters. So if you lack deep
insights and aren’t knowledgeable about how the market operates, opt mutual
fund investment through SIP. By doing so, you wouldn’t need to worry about when
and how much to invest ever again.
5.
Don’t be afraid to diversify:
Diversity is the name of the game, as far as mutual
funds are concerned. The market is flooded with a wide array of funds,
including diversified equity funds, commodity-related funds, sectoral funds,
index funds, and so on. It’s always advisable to put your eggs in different
baskets, just so that the risk is spread well enough.
6.
Monitor regularly:
Investors, both seasoned and new, often out rightly
ignore monitoring of their investments. If the mutual fund performances aren’t
in line with your financial objectives, you will end up with lesser than
expected returns.
7.
Don’t be fooled by NAVs:
The absolute value of NAVs, unlike stock prices, isn’t
suggestive due to the performance or quality of the schemes. In fact, NAV
constitutes the function of the number of units and the total of assets under
management. So a NAV of Rs. 1,000 doesn’t necessarily imply a better scheme
when compared to a NAV of Rs. 100.
These
tips will surely help you lower the risks while maximizing your returns.
