Tips on making the right mutual fund investments

Posted by amrina alshaikh on October 18th, 2019

Mutual funds are a hot topic for every investor and market expert worth his/her salt! They are some of the most popular options for investments in the country today, particularly for those people who seek growth in their savings over a longer period of time. One of the key reasons behind the popularity of mutual funds is the sheer convenience and flexibility. The investments can be made for really small amounts starting from Rs. 500 and the duration is also flexible enough. Investing in mutual funds can still be somewhat intimidating for people due to the risks that are linked to these types of investments.

Several newbie investors often make the mistake of believing that mutual funds are really the same. Nothing could not be farther from the truth! There are various categories of mutual funds which covers hybrid, debt and equity funds. These funds vary on the basis of multiple parameters like overall theme-based exposure, the duration/horizon for investments, asset classes for investment and overall tax benefits.

You should always possess a keen understanding of the inherent risks associated with mutual funds. These risks should be carefully analyzed on the basis of scope/opportunities for investments. All investments have a measure of risk that you should understand properly prior to taking the plunge. Equity funds, particularly small cap and mid cap funds, come with the highest levels of risks alongside the highest reward potential as well. Debt funds however, have lower risk levels and returns in comparison. Hybrid funds make investments in money market and debt based instruments along with equity markets. As a result, they have managed to achieve a balance between returns and risks.

You should always have a clearly set goal when you set out to invest in mutual funds. Remember that these are highly flexible financial products which can be invested in for amounts as small as even Rs. 500 if you wish! The investment can be redeemed anytime as per your discretion. Keep your investment time frame and objectives in mind likewise.

The Net Asset Value (NAV) should not be the be-all and end-all of investing. This is not an indicator of fund performance going forward. Always measure fund performance in terms of value growth over a particular time period. You should keep diversifying your mutual fund portfolio across mid cap/small cap funds, debt funds or liquid funds. Refrain from keeping all your eggs in one basket. Always have an investment approach that prioritizes growth over the long haul. Long-term investments are the only solution towards creating wealth and appreciation of your money. Tracking or monitoring of your investment is important on a periodic basis, above all else. You should keep tracking the investment to see whether it is performing as per your expectations. If it is not, you can re-allocate investments to better options accordingly.