5 Personal Factors Every Investor Should Take Into Consideration When Selecting

Posted by sipnowbsl on December 3rd, 2018

When it comes to selecting a mutual fund, most of the investors generally focus on factors like the past performance of the fund, risk-return ratio, AUM, fund manager experience, and reputation of the AMC. While all of these are crucial in selecting the best SIP plan, most of the new investors fail to consider the intrinsic factors.

The intrinsic factors are nothing but the personal factors related to your objectives and behaviour. Just like all the other factors, these personal factors too have a significant role to play in your investment journey. Five such factors that an investor should consider are discussed below-

1. Investment Objective

The most crucial intrinsic factor with regards to mutual fund investment is your objective. Your investment should always have a realistic goal. It can be something as simple as generating better returns than FD, beating inflation, saving for a car, tax-saving or something long-term like child's marriage or retirement planning.

The investment objective of every investor can be different. Know why you’re investing in the mutual funds to be better able to pick the right SIP plan.

2. Risk Profile

Every type of mutual fund carries risk. However, the level of risk significantly varies between funds. For instance, small-cap equity funds are considerably riskier than debt funds or liquid funds.

So, a debt fund might not be the best choice for an aggressive investor, and small-cap equity is a no-go for a conservative investor. When selecting the SIP plan, make sure that you thoroughly analyse your risk profile to choose a fund that perfectly suits you. Your risk profile will depend on some key factors such as your marital status, number of dependent family members, number of children etc.

3. Current Age of the Investor

Your age also has a crucial role to play in fund selection. Younger investors are considered to have more time than someone who is already in their late 30s or 40s. Equity funds are well-known for long-term wealth generation, making them an excellent choice for younger investors.

As you get older, your priorities change and the focus shifts to stability and consistent returns. This makes debt funds an excellent option for older investors.

4. Asset Allocation

You need to allocate your funds across multiple assets to create a balanced portfolio. With regards to mutual fund investments, this would mean spreading your investment across different types of mutual funds. Depending on the factors mentioned above, you can create a portfolio that best suits your requirements.

For instance, aggressive young investors can have more exposure to riskier equity funds. An ideal portfolio for them can be 40% diversified equity funds, 20% small-cap equity funds, 20% balanced funds, and 20% debt funds.

5. Right SIP Amount

The selection of the SIP amount also depends on some intrinsic factors. While you can start investing in best SIP plans with just Rs. 500 a month, make sure that the SIP amount is in line with your objective and investment duration.

You can use online SIP return calculator to get a better idea about the right SIP amount. Also, note that it is always better to start as early in life as possible irrespective of the amount you can invest. If you can just start with Rs. 500 a month, just select a scheme and start investing. You can always increase this amount anytime in the future. Know that the longer you remain invested, especially in equity funds, the better are the chances to earn higher returns.