What are the three basic principles that one should follow while investing in mutual funds for the first time?
- Anonymous
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I would like to state that the first principle - as a cautionary statement - is that mutual funds do not guarantee returns. If you are looking for guaranteed returns, then you should settle for something predictable. However, this predictable return may not be optimised return and therefore, may not compensate you for your long-term money.
Besides, another thing to remember is that while equity investments give the best returns over a long period of time, their short-term performance can be very disappointing. So, if you don't have long-term money, then you are not meant for equity and you should not invest in it. When investing in equity, you have to work towards reducing your risk. Risk reduction comes from two things: ensuring that you will not need this money in the near future, i.e. it is your long-term money and that you are not investing the entire amount in one go, instead of on a regular basis.
It is far easier for me to say that think for the long term and invest regularly. However, somebody who has never invested in any market-linked investment will become anxious if investments go down in value. Therefore, one should never start with a 100 per cent equity investment. Take a conservative stance, look for something like an equity-saving fund that invests one-third in equity. It will give you moderate ups and downs and help you develop a belief.