Tips on how to invest in mutual funds

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.