What 2020 holds for Mutual Funds 

With an expected economic revival in the next few quarters, the new year has started a good note and is expected to be positive for those investing in mutual funds. After having evolved to become a household name in investments over the years, Mutual funds have passed through challenging times even as the markets went through a rough patch. Mutual fund participants believe active fund management can bring in extra returns for investors in the country, at least for the next five to seven years or more. They expect the small-cap basket, which has the potential to provide investors with outsized returns, turning to be a major wealth creator for investors.

With a number of Mutual Fund schemes out there in the market, a newbie to the world of mutual funds may see it a bit confusing on how to proceed with. As the name suggests, mutual funds collect funds from investors who share similar financial goals and invests them -- with a clear and defined investment objective -- in a portfolio of assets. To know how they make good use of the market swings and help you gain good returns, let us understand some key features that will keep you in good stead even as you weigh the pros and cons of taking that plunge.

Though seeking the advice of a financial advisor is not a bad idea, if you want to learn and invest yourself, you have to start by asking yourself certain important questions like, “Where do I stand? What is my investment portfolio and what are my financial goals? How long do I want to invest? Am I looking for a relaxed retired life? What are the other financial requirements that I foresee in the years ahead?” Good thinking aloud will help you come up with a clear stand on how to proceed with.

As a new investor, if you are planning to make a long-term investment with a moderate risk profile, you should invest mostly in multi-cap mutual funds. Make sure that you understand these basics well as the knowledge will help you find suitable mutual fund schemes to invest in. If you want to diversify the portfolio to reduce risk, you may add some large-cap mutual funds to your portfolio. While international funds are meant for large investors looking to diversify their portfolio, large & mid-cap funds and small-cap funds are meant for aggressive investors.

You also have to assess your risk quotient as all investments, despite all the optimistic claims, have some element of risk associated with them. Determine how much risk you can afford to take. There is no gain without any pain. But then, it is also important to have a clear perspective on the risk factors involved and your personal and financial parameters. A clear Mutual Fund portfolio helps you monitor and manage your investments easily and effectively. You have to well diversify and create a portfolio that works towards your financial goals. Also, you should know the tax implications: how much tax you will be liable for when you redeem your investments. Some investments like equity-linked savings scheme offer tax benefits.
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