You may all have heard this sentence that it is only through investment, that you can beat the inflation monster and can generate healthy returns. However, investing in stock market does not suit everyone’s needs. Addressing this handicap, many finance companies came up with the idea of mutual funds. Typically, a mutual fund pools the money from different investors and invest it into the market. This way, an average investor can also earn a decent amount of returns while remaining comparatively safe from the volatility of the stock market.
However, like any other investment vehicle, mutual funds too have the risk-reward issue. Higher the risk, higher the chances of reaping benefits. Here, I would share some tips with you which might help an average investor to make a rational decision.
First of all, mutual fund investments are not risk-free. Since mutual funds invest in the market, your returns would be based on the ups and downs of the market. If your investment horizon is less than 4 years, try not to venture into equity mutual funds. You can invest in debt mutual funds and other instruments.
Do not try to time the market. I have seen many guys trying to buy more mutual fund units when the market is low. This strategy works sometimes, however, make sure you do not put too much money in a single day. If the market falls further on the next day, you will end up making huge losses. To avoid this, start SIP in mutual funds. SIPs allow you to make a fixed investment every month in your desired mutual funds. However, you need to be KYC complaint for this. You can invest online as well. Just be knowledgeable about that.
If you are investing on your own, choose the direct plan of a mutual fund instead of the regular plan. The expense ratio in the regular plan is higher than in the direct plans. However, if you are not able to understand the specifics of the mutual fund investments, visit websites like moneycontrol.com and valuresearchonline.com.
Do not fall into the trap of huge returns. Whenever you buy a mutual fund, take a look at its past record. Look at its historical performances for over 5 years and see whether the fund has been able to beat its benchmark consistently, especially during the bearish phase of the market.
Gain as much knowledge as possible before making any investment. It is advisable that you read as much as you can and follow the latest news in the market. Overtime, this would help you in understanding the workings of the mutual funds and you would be able to make wiser decisions.
Lastly, if you find that you are not able to keep up with all the online content, try taking help of an advisor. It will cost you some money, however, you would be able to understand the mutual funds better. Never ask your bank relationship manager for the advises, as they would be selling you the funds where they can earn the highest commission.
Investing in mutual funds can be rewarding, however, you have to understand their workings better. I would advise you to learn as much as possible about the mutual funds through online platforms before making any investment move.