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What to consider before Investing in Mutual Funds

Monday, June 10, 2019

Amar Pandit, Founder of HappynessFactory

Within Indian society, Mutual Funds have been an available avenue of investing. But traditionally, people have preferred investing in physical assets like Gold, FDs and Real Estate. The post demonetisation period however, revealed a shift in this investment behaviour, to make more investments in other financial assets.

Now, for an increasing number of people, Mutual Funds are the preferred investment option. But, ‘returns’ seem to be the only factor taken into consideration while making an investment decision. When people make investment decisions holding returns as the main criteria, and taking on advice from CAs, Banks, Family and Friends, they accumulate a hodgepodge of unwanted products overtime, which might not suit their specific needs.

To ensure that you make the the most of your Mutual Fund investments, there are a few things that need to be kept in mind. First, Mutual Funds can be customized to your needs, goals, time horizon and risk appetite. So, take a moment and think about what you like to channel your money towards. This ensures that you have a plan which is as personalized as it gets, and which gives you good returns. Second, understand that the market will have its ups and downs, and changing your plan based on these fluctuations will only end up hurting you in the long run.

To make the most of the returns the market has to offer, here are a few thing you MUST consider before investing in Mutual funds.

Goal of investing
It’s a proven fact that with a goal/target in sight, people work harder to achieve it. Thus, this is the very approach one should take when it comes to setting financial goals. Make sure your goals are tangible, specific and measurable. With a definite purpose in mind, making regular investments becomes easier.

Variety in Schemes
Mutual Funds provide a wide range of schemes; Liquid Funds, Debt Funds, Equity Funds and Equity Linked Saving Schemes, each serving a different purpose. Keep in mind your investment objective to pick the right scheme.

Risk v/s Returns
Mutual Funds offer schemes of the Aggressive, Balanced and Conservative nature, to account for all risk appetites. Don’t simply get lured by a fallacy of 20% returns, understand the nature of the scheme and pick one suited to you.

Considering your investment time horizon while investing is paramount. Mutual Funds provide a wide variety of options to suit one’s needs. Understand your needs and risk appetite before making a decision. For example, investing in an Equity Mutual Fund for a period of two years, is not a suitable investment option as they tend to be volatile in the short term. They are more likely to be effective when you plan to stay invested for more than 5 years.

The best thing to do is prepare a goal based financial plan, invest wisely towards those goals and let them grow by ignoring the market noises. Better than evaluating the right product is to evaluate the right advisor, the one who’ll help you make the right decisions.

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