Mutual Funds96 views
- How much to invest in a top-rated mutual fund?
- Decide based on your goals, risk-appetite and time horizon
When it comes to investing for the future, mutual funds remain the topmost alternative for many. The increased diversification and the scope for market-linked returns make a rewarding future possible. You can choose from several types of mutual funds – equity, debt and hybrid – catering to investors with different investment goals, risk-appetite and time horizons. Those having ambitious goals and high-risk appetite would need the power of equity funds to generate large corpus. Whereas the conservative investor class should find investing in debt funds appealing as they can provide regular income at a lower risk. There’s another class of investors that seek the rise of equity and the stability of debt. For them, a hybrid fund can be ideal.
Besides choosing fund according to your risk appetite and investment goals, you also need to pay attention to the rating of the fund. The rating is predominantly on the basis of the returns the fund might have delivered across different periods. Rating agencies such as Value Research can rate a mutual fund scheme in 1-5 stars. While a 3-star rated fund is seen good, the topmost 5 is excellent. The rating is predominantly a byproduct of the performance the fund has delivered over the years, although it’s not an indicator of how the scheme will perform in the future. However, a top-rated fund does create an impression of sorts. You can thus invest in according to your risk-taking capacity to empower your financial journey. What’s important though is to figure out how much you need to invest? That will mostly depend on your goals, risk-appetite and investment horizon. Let’s sit to discuss these crucial aspects.
Table of Contents
Figure Out Your Goal Amount
The goal amount you want to achieve will greatly determine the quantum of quantum you need to make. There are predominantly two ways by which you can invest in a mutual fund scheme – SIP or Lump Sum. While an SIP means the investment will happen periodically (daily, weekly, fortnightly, monthly, quarterly, half-yearly or annually), the lump sum is typically a one-time investment. An SIP is widely considered as a good way to accumulate the goal corpus in the best way possible.
Assume you want around ₹30 lakh in 10 years from now. At an assumed annual rate of 12%, you can accumulate the desired corpus by investing around ₹13,000-15,000 monthly via SIP. If your budget does not allow that much of monthly investment, you can invest with a lower amount and increase it periodically using the step-up SIP option. Start investing ₹10,000 if you feel that is the maximum you can invest right now. Increase the monthly investment by ₹1,000 next year and so on by availing step-up SIP. Our calculation at an assumed annual rate of 12% pegs the corpus at around ₹30 lakh in 10 years from now.
Invest According to Your Risk-appetite
As this is an investment, the point of risk-appetite comes to the equation. If you have a high risk-appetite, your portfolio should mostly constitute equity funds. Now, the high-risk appetite can be moderately high and high, with the former class of investors should invest a heavy chunk in the large-cap funds, a type of equity fund that invests mainly in the stocks of top 100 companies according to the market capitalization. The money grows consistency at a stable pace considering the investments are made in companies with a sound operational structure. Otherwise, you can invest across multi-cap, mid-cap and small-cap funds. The distribution of money can be seen in the table below.
Investors with a low-risk appetite should concentrate around 80% of their portfolio in debt funds. Those with both conservative and aggressive investment aptitude should invest mostly in hybrid funds.
The determination of the investment amount would also depend as to the time for which you want to stay invested in a mutual fund scheme. A long stay means the investment should mostly be in equity funds. On the other hand, short-term investors can take the route of debt funds.
You should thus figure out the investment amount keeping in mind the aforesaid factors.
Note – “Mutual fund investments are subject to market risks. Please read the scheme document carefully before investing”.