5 things to take care of when making mutual fund investment

by S J Bharti Owner Mutual funds are an effective channel for investment with an array of schemes in various combinations. Whether you are a newbie all set to make a foray into mutual funds or a veteran, the purpose of the investment is to generate wealth in the long run. The trick when dabbling in mutual funds is to exercise caution and choose schemes wisely to make the venture a rewarding one.

Looking for avenues to invest your hard money? Every individual wants to earn better rewards on investment, and mutual funds are a sure shot way of attaining those objectives. They are unquestionably a good investment platform, provided you make the right choice of funds and pick the winners. Not an easy task, given that over 3,500 mutual schemes are inundating the market. No worries! Here are five things to keep in mind when adopting the mutual fund route for a positive financial outcome.

1. Financial objective:

Make the investment allocation as per your financial objective and risk taking capacity. If you are looking at the short-term goal, opt for a liquid fund which offers flexibility for redemption and comes with low risk and returns. On the other hand, a balanced fund is ideal for medium-term while equity-oriented funds are ideal for the long term.

2. Diversification:

Another key mantra of mutual fund investment is not to put all your eggs in one basket. Instead of making a large investment in one segment, diversify your portfolio and split the capital into various schemes. This approach reduces the element of risk and ensures good returns even if one fund underperforms. Mutual funds have plenty of options to park your money like hybrid funds, equity funds, debt-based funds, commodities, index fund, tax-saving funds etc.

3. Miscellaneous:

There are a few other things that should be factored while investing in a mutual fund. It is imperative to check the reputation of the fund house, service offered, its underlying business performance and the experience/consistency of the fund manager. Also, find out about the total Assets Under Management (AUM) in the scheme along with exit loads, tax implications, the expense ratio of the fund and more.

4. Regular Tracking:

Though vital, this aspect is often side-stepped by investors at large. It is important to keep an eye on your mutual fund investments and monitor their performance on a regular basis. It enables you to take any corrective measures, such as switching to another fund if a certain scheme is consistently lagging.

5. Stay Invested:

Apart from buying smartly, it is crucial to hold your horses and stay invested for a long term to let the capital grow. Often investors are prompted by the market sentiment and hit the sell button. It’s a big no-no. By churning the portfolio every time there is a downturn or a bull-run, you are likely to end up with tons of junk. Not to mention, you will be making way too many transactions.

Remember, investment is a serious matter that plays a pivotal role in shaping your financial health. You don’t want to lose your wealth in a shaky venture right? It is thus vital to comply with the basic investment principles and adopt a disciplined approach to reap long-term benefits.

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Created on Oct 31st 2017 05:25. Viewed 684 times.

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