Investment in Mutual Funds - A Step by Step Guide


INVESTMENT IN MUTUAL FUNDS: Part 1

 Here’s presenting to you a step by step guide when you want to invest in mutual funds:

STEP 1: We all know that the markets are down and same is the case with equity mutual funds. But, the investment in mutual funds is not affected because of the fact that they offer higher returns in the long run which is not the case with other assets. However, the fact which many fail to consider and should be careful of is that these mutual funds can be volatile and even generate negative returns in the short term. 

STEP 2: Like, equity mutual funds invest in stock, there are debt mutual funds, hybrid schemes, international schemes, gold funds and sector or thematic schemes that invest in debt instruments or fixed income securities, a combination of debt and equity, abroad, gold and in a particular sector or theme, respectively. So, one should not assume that all mutual funds always invest only in stocks.

STEP 3: The decision to choose a mutual fund depends on the goals; time frame intended to achieve those goals and the risk profile of the investor. For instance, fixed deposits or debt mutual fund schemes are better options for short term goals where one cannot afford to take risks. Risk can be taken for long term goals where losses can be recovered over a long period in case the investment is hit by some factor.

STEP 4: It is not a simple decision to choose amongst a wide array of equity and debt schemes available. For equity investors who are conservative in nature, large cap schemes are more suitable as they are less riskier than the multi cap schemes whereas, for moderate equity investors, multi cap schemes might prove to be beneficial . The aggressive investors, on the other hand, should select a mix of mid cap and small cap schemes. Similarly, investors who have an investment horizon for a few months cannot invest for long durations. An ultra short duration scheme is beneficial to park money for a few months. Short duration schemes would be ideal when investment id to be done for a few years.

STEP 5: A mutual fund advisor should be consulted if one does not want to lose sleep over investment in mutual funds. This is important especially when the market is being tough. Investors having thorough knowledge about mutual funds and market conditions only should directly invest in mutual funds. Else, hand holding from a specialist / expert (mutual fund advisor) is essential.

Investment in Mutual Funds – Part 2 coming soon …..