Mutual funds are professionally managed investments that are one of the popular options available today. Many individual investors who are hesitant to enter the stock market directly take the mutual fund route as it offers many benefits, along with convenience and flexibility. However, with more than 2,500 mutual fund schemes offered by 44 AMFI (Association of Mutual Funds in India) mutual fund houses, investing is quite challenging. A fundamental and disciplined approach is the only key to success.
The first step to investing in a mutual fund is identifying your investment goals and the time frame to achieve those goals. There are various types of mutual funds available, and the objective of each fund type differs to suit the diverse investment needs of every investor.
For example, liquid funds could be a great choice if you are looking for a mutual fund option to park your extra corpus, which you may need in the next three or six months. Equity funds would be a great choice if you are looking for long-term goals.
Ascertaining risk tolerance is an important step in mutual fund investing. You can bear the market volatility and invest in a suitable fund based on your risk-tolerance level. If you have a high-risk tolerance level, you can consider going for aggressive equity funds such as sectoral funds or thematic funds. If you are a moderate risk-taker with a long-term goal, you can consider investing in bluechip equity funds. Evaluating the risk helps you make a rational investment decision.
When you know your goals, time horizon, and risk profile, you can decide the suitable category of mutual funds. There are various funds offered by the different asset management companies within the same category.
The next step is to do thorough research and compare each mutual fund scheme in the category based on factors, such as the fund’s historical performance, consistency in performance, expense ratio, sectors, underlying securities, etc., to make the right choice of mutual fund investments.
Mutual funds offer flexibility to investors. You can choose the systematic investment plan (SIP) route to make regular savings or invest through lumpsum investment mode. Your investment strategy should be focused on growth over the long term.
It is important to keep in mind that mutual fund investments are not a quick-money option. To reap the highest returns, you need to invest in the right fund with a long-term growth perspective.
Diversify your mutual fund investments so that the overall risk can be reduced and well managed over a period. Build a well-diversified portfolio to reduce risk, and maximise returns to achieve your investment goals. Mutual funds have the potential to generate great returns and help you achieve your investment goals when you invest in the right fund with a disciplined approach.
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