Adhere to these investment basics while investing in mutual funds

Navneet Dubey

Moneycontrol News

The first step towards successful investing in mutual funds is to have a clear understanding of your financial goals and one’s risk appetite including the time horizon required to achieve those goals and then accordingly choose their fund.

A basic issue bothering mutual fund investors would be on the ways to approach mutual fund investing. “Once you have identified the category and type of mutual funds, it’s time to select best fund within that category on the basis of its investment objective, past performance (vis-a-vis peer funds), benchmark indices, as well as the reputation of fund house and fund management team,” said Manish Kothari, Head of Mutual Funds, Paisabazaar.com.

Santosh Joseph, Founder & Managing Partner, Germinate Wealth Solutions LLP says that investors should keep the following investment advice for before investing their money in mutual funds.

 Time, Time and only Time

Enough has been said, “Spend time in the market” rather than “Timing the market”. Mutual funds are fantastic avenues to invest and hold a basket of great investment ideas (stocks). Your mutual fund investments will deliver better yields over a longer time horizon.

Some diversified equity funds have delivered over 10% CAGR during a time period of past 10 years, and over 20% during past 20 years

Your investment will not only gain from the power of compounding over the years but also give you the necessary tax savings. In addition, you also profit from completely tax-free earnings for staying invested in mutual funds for a period greater than a year.

 Go for Growth! Choosing growth option vs dividends

Though some schemes do pay handsome dividends with some level of predictability, they are not assured in quantum or frequency. Allow your funds to grow and get the benefit of compounding returns, which adds significant power to your investments.

Portfolio vs Performance

The previous year’s returns make an attractive case for investing in equity mutual funds. However, the trend should not steer you from realizing the risks involved in investing in these funds. Maintaining the appropriate balance in investing is important for optimal experience in investing. Don’t just chase past performance always choose a great portfolio rather than just great returns.

 Know the Risk

It is quite natural to direct your money into funds that have proven their mettle. However, it is important to realise that asset allocation should be done keeping in mind your risk appetite and goals; the best way to fulfill this is diversification.

Diversification in asset classes, schemes and to some extent across a few mutual fund companies is the best way to make the most out of this wonderful investment option.

This information may help investors to take good decision while investing in mutual funds. However, taking proper guidance from a financial adviser is must who can help you in reviewing your funds’ performance linked with your financial goals.