The best thing about Mutual Funds – it’s like your favourite ice cream parlour.
There is a flavour for everyone!
Let me elaborate.
High risk, low risk, open-ended, closed-ended, long term, short term etc. MFs are more risk-averse and diversified than any other form of investment.
They ensure the investor safer and better compounding of returns with minimal legwork. Fund Managers create and maintain a portfolio across equity, bonds, commodities etc.
Each fund is designed and monitored for a specific goal, and; if your own financial goals match the investment objective of the fund then you are home!
Below, I have listed 5 things any new investor must consider before investing in a mutual fund:
#1. Category Vs Fund Rationale
One of the most common investing tendencies is hastily investing in a fund that ranks among the highest by the mutual fund websites/agencies.
But, it is actually important to identify the right category first.
For e.g. If one does not wish for a high-risk portfolio, he might decide to invest in debt funds. A high-ranking equity fund delivering much superior returns will not change his decision.
Once you are clear on what categories your portfolio will comprise of, you may begin analysing the funds.
The important thing is to see the stability of the fund, annualized returns, the expense ratio and fund manager.
And of course, choosing a fund house you can trust.
In this article
#2. Risk/Return trade-off
If you invest in a fund that is high risk, it is very important that the returns are in tandem with the risk taken.
Else, it’s time for a portfolio shuffle!
Similarly, if a low-risk fund is not promising you stable returns or has not been performing as expected, you must reconsider.
From the plethora of options available, one must not shy away from switching to a more suitable fund.
#3. Over-diversifying is tricky
The fact that diversification reduces risk is a well-known fact.
However, over/wide diversification is not directly proportional to mitigated risks.
Beyond a basic level of diversification, funds will not increase gains.
It is important that novice investors start with the basics and tread forward. There is a possibility that in the rush you might end up adding similar kind of funds to your portfolio, thereby moderating returns.
#4. Watch over the market
Monitoring your funds and the market is a sign of a sincere investor.
For e.g. you have invested in a fund that has been 20% annual returns for the last 5 years, It is a possibility that the returns may drop to 11% in the year gone by, but you are unaware of it.
That is the main characteristic of an economic market- fluctuation!
This makes it pertinent for every investor to monitor the funds acquired.
#5. Choose the convenient option
It is convenient to invest through mutual funds.
The amount that you pay as expense ratio, looks very small at the onset, but can make a huge difference to your long-term gains.
Direct funds improve your returns, lower the expense ratio and increase the NAV.
Also, direct funds ensure better control of investment. Every convenience comes at a cost but if the cost is being acquired from your valuable savings, it is time to rewind and do it profitably.
Here’s hoping these precepts make Mutual Fund investing easier for you!
Well, now that you know the five most important things about mutual fund investing, it is time you put them into practice.
If you need any mutual fund assistance, you can simply drop an email to firstname.lastname@example.org or call us on our Customer Support number! Our team will solve your query.