Tips for successful run in mutual fund investments

It’s easier to get influenced by the returns and safety that mutual funds offer to the investors. The returns are maximised by putting the investment in equity products, while debt instruments such as bonds and fixed maturity plans (FMPs) ensure a higher degree of safety by providing a stable flow of income to the investors. But investors, who are not aware of their risk profile, face bundle of losses on mutual fund and end up worsening their financial lives. So, in this article, we will highlight some points that will help you enjoy your bonhomie with mutual fund for a long time.


Assess your risk profile properly

All the mutual fund schemes carry varying degree of risks on the basis of investment objective, investment methodology and underlying securities. Risk is higher in equity funds and lower in debt funds. However, the return parameter is exactly in the reverse order. So, it is important you assess your risk profile properly so that you can pick the fund as per your suitability. Don’t be too influenced by the performance of a particular fund as doing the same can backfire you. Instead check the nature of the fund and its investment objective before taking a call on the same.

Set clear investment goals

You must carefully read the documents related to the scheme to know its objectives, past performance and time horizon. Make sure you put the money in a scheme, which is expected to give the best return as per the goals you have set for yourself. If you have set a goal which could take around 5-7 years to complete, then equity mutual funds are the option to go with. The reason being they offer better returns in the long run.

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Become a disciplined investor

Be decisive and disciplined while making investments in mutual funds. The best way to start your mutual fund journey is by picking the right SIP of a fund house. SIP, which stands for Systematic Investment Plan, allows you to invest small as well as large amounts of money on a monthly basis. SIPs, which can start from as low as Rs 500, offers the benefits of rupee-cost averaging means you can buy more units during the falling market and lesser units in the upswing of the market. Also, you can take your money to unprecented heights by using the power of compounding that helps grow the investors’ money by generating interest not only on the principal but also on the interest accrued.

Stay invested for long to reap more benefits

It could be a tendency on the part of any investor to sell off the investments to exit the market when it is falling down and returns are getting eroded. But mutual fund investments are altogether a different thing. The longer you stay invested, better it will be for you as the effet of compounding can be huge as the time goes along.

Opt for right diversification

Mutual funds present a series of investment diversification opportunities. There are various types of mutual funds such as equity funds, diversified equity funds, sector funds, index funds, commodity funds as well as different debt funds to choose from. Select the fund according to your risk profile so that the investments get adequately diversified and you receive the desired return at the same time.

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Invest in balanced funds

If you want to enjoy greater return at minimum risk, then balanced mutual funds are the ones that you can go with. Balanced funds, also known as hybrid funds, put your money across equity and debt instruments in good proportion to increase your wealth and reduce the element of risk simultaneously. Balanced funds can be of two types- equity balanced fund and debt balanced fund. Equity balanced fund invests 70-75% of the capital in equity and the rest in debt instruments. Whereas, debt balanced fund keeps 65-70% of the capital in debt and the remaining in equity.

Don’t take NAV too seriously

The net asset value (NAV) does not exactly say about the quality and performance of a mutual fund scheme. NAV represents the function of total asset under management (AUM) and the number of outstanding units. So, it is not necessary that a fund with a NAV of Rs 80 is better than the one with a NAV of say Rs 30.

Prefer growth plans over dividend plans

Don’t be too influenced by the dividends that you can receive from dividend plans. With the distribution of dividends, the NAV of the fund reduces significantly. So, keep your eyes on the long-term goal and opt for the right growth plan to grow your money systematically. You can enjoy long-term capital appreciation by investing in growth oriented mutual fund schemes.

Be a good judge of your risk appetite, investment goal & horizon to enjoy a long and successful journey in mutual fund. Make sure you stay invested for long to reap the benefits of mutual funds in true sense.

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