Mutual funds schemes are all in the hype now. But, what is all this buzz about? These mutual funds schemes are professionally managed investment programs. But, it might seem difficult to get started, right? Actually, it is not that hard. These 10 tips will help you breeze through your first investment in a mutual fund scheme.
Set your time horizon and goal
A time period of your investment as well as the amount you want to have by the end of the term should be fixed beforehand. For example, equity fund schemes should only be bought if you have a 5-7 years of time horizon. This will help you choose appropriate mutual fund schemes.
How much can you risk?
Are you a low risk taker, medium risk taker or a high-risk taker? Ascertain your risk limits and then go for the mutual fund schemes. Remember though, higher the risk is, higher will the returns be, and vice versa. Equity funds have the highest risks while liquid funds have the least risk. So, choose your scheme properly, and d not go out of your risk appetite.
Diversification of your portfolio is very important if you want to minimize the overall risk and maximize he overall returns. Do not invest in only equity funds or liquid funds. Have a healthy composition of both low return and high return funds. This is called optimal portfolio management. If it’s difficult for you to do it on your own, you can take the help of financial advisors who will design your portfolio.
Keep checking the market, as well as your mutual fund regularly. Any ups and down in the market can cause a turbulence in your investment. So, keep your eyes open, and if you see the market is depreciating, shift the mutual fund. On the other hand, if the market is appreciating, sell the mutual fund scheme and gain huge profits.
Patience is the key to success, and wealth. Do not get upset at minor upheavals of the market. The market keeps going up and down, that doesn’t mean that you may incur a loss. Keep patience and do not retract your investment at small depreciations. The market will do up soon enough, and you may regret the decision later. Being said that, it is also important to know when to retract or shift your investment. Take the advice from a financial advisor on this matter.
Don’t try to predict
Do not try and predict the market, and act hastily. Sure, there are some common trends that a market follows. But, the market is largely unpredictable. According to the economists, market is self-sufficient. That doesn’t mean the company you are investing in or buying the mutual funds from is self-sufficient. It might crash, like Kingfisher, or it might accelerate, like Apple. Trying to predict the market for investment purposes is utter foolishness.
Schemes with one-year returns should be avoided
Shady schemes showing only one-year’s returns should be avoided. There are many scams happening, and to be sure of the mutual fund scheme you are investing in, see its last5 to 6 years’ performance and returns.
Tune out the noise
An amateur investor should not bother with balance sheet corrections, re-balancing the portfolio, invest in negatively co-related funds, or shorting of funds. These are meant for advanced and experienced investors. The new investors should not bother with these advices. The simple thing that can be done is to check the past returns of the scheme, and see its market position, and that will be enough.
Discipline is the key
Restraint and discipline are imperative while investing in mutual funds. Do not diversify too much by investing in each and every scheme you come across. Do not invest more than you can afford, and take care to maintain the optimal portfolio.
Include balanced funds
Balanced funds can effectively cushion the losses from inflation, interest rates, and market volatility if you have pre-dominantly equity-based portfolio. This can also give you the much-needed diversification.
Investing in mutual funds may sound complicated, especially with all the big words thrown at you each time this topic comes up. But, keeping in mind these simple tips will get you started smoothly and efficiently.