Mutual
funds emerge to be a popular form of investment for beginners who want to
increase their finances over a period of time. The main reason for its
popularity is its flexibility. The best platform to invest in mutual funds is online as you can invest for a small sum of money for an
infinite period. Still mutual funds could pose to be a daunting risk for
individuals due to the perceived levels of risk.
Investors
are of the notion that investing in any mutual fund is the same, but it does
not work that way. They are divided into categories and further sub categories
for an investor to invest. The funds are not dependent on any investment
horizon, but differ on the basis is asset class and even exposure levels.
Because of the diversification of choices you might feel overwhelmed and find
it difficult to distinguish among the various choices. Before you are planning
to make a foray into mutual funds there are some pointers you need to consider
Figure out the type of risks involved
For
your investment opportunities you need to clearly outline the risks involved.
Be it any type of mutual fund there is a certain level of risk involved due to
the underlying securities or even the investment methodology. The equity funds
have the highest level of risk though they provide you with the highest levels
of return. On the other hand debt funds have low risk and for this reason the
returns on investment are on the lower side. Hybrid funds adopt a balanced
approach as far as investment is concerned.
It
is important that you clearly figure out the risks or return relationships in
relation to each of the funds and in the choice of a mutual fund it needs to
meet your levels of expectations.
Have your investment objectives clear
Once
the risk is figured out there are a couple of questions you need to ask. They
are what the amount you are planning to invest is and what duration of time you
can remain invested. Mutual funds provide a lucrative option as you can start
off even with a small amount. In addition apart from certain mutual fund
schemes like ELSS you can redeem your funds at any point of time. This works
out to be the main objective of a mutual
fund goal calculator. If you are planning to invest for a short point of
time then liquid funds would be a worthy option
NAV does not have any significance
The
NAV associated with a mutual fund does not have any significance on how a fund
is performing over a period of time. For this reason the mutual fund figures
are represented by percentage figures. Once you have gone on to purchase a fund
with a high NAV or low NAV the investments as a percentage would have an impact
only when the performance of a fund is considered.
Diversification over a period of time
Mutual
funds provide an ideal opportunity to diversify your investment over a period
of time. This is based on the level of investments that you end up making over
a period of time. For example if you feel that the market is bullish and you
want to make money at a fast pace then opt for investments with high risk. The
same policy applies if you do not want to take risk and then opt for a
significantly lower investment tool. A general saying is that you need to
diversify your portfolio with a mix of equity and debt instruments as this can
help to balance the overall levels of risk in terms of your portfolio.
Mutual funds needs to be invested for a long period
of time
For
some investors mutual funds might seem to be an option to make some quick
money. But seldom had this works that way as you need to stay invested for a
longer time horizon in order to reap the rewards. Ideally you should stay
invested for a period of 5 years or more, the reason being that the equity
markets are really hostile. If a long term horizon is adopted then the equity
markets would always head to the upward direction.
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