3 Things to Keep in Mind When Investing in Mutual Funds October 9, 2017 Posted By MCB - Arif Habib
A lot of people assume that investing in Mutual Funds is tedious business. This is not entirely true because with the right kind of financial advice, the experience can be quite seamless. Here are some of the most important things which you need to keep in mind when you think about investing in Mutual Funds:
1. Invest based on your risk profile:
While mutual funds make things easy, it is important to remember that not all funds meet every individual’s needs. Some are more geared towards short term security while others may be long term capital appreciation tools. It is important to know one’s own objectives and goals first. As a quick guide, here are some quick tips:
- If you want to move money to a mutual fund just to stop yourself from spending it, a money market or income fund is the way to go. These are very low risk funds and they offer a steady growth in value.
- If you have a medium-term objective (saving for something 3-5 years down the line) it might help to add a small equity fund exposure, maybe up to 20-30%.
- If you have a very long term goal (lets say 5-10 years down the line) you can increase your equity exposure 40-60%.
- For a goal beyond 10 years, a 100% equity fund is considered relatively safe and offers growth to meet your long term objectives.
Do remember, not only you can always invest in multiple funds at one time, but you can also, conveniently switch between different funds in your account.
2. Don’t Let Market Ups and Downs Stress You Out:
It cannot be denied that the stock market tends to rise and fall on a regular basis. Investors do not realize this and often panic whenever the market drops. As an investor you need to be aware that over a longer period of time, your investment is going to absorb market ups and downs and give you ample returns. You should not be hasty and exit the stock market or sell your shares just because the market has dropped. Instead, it is much wiser to ride the wave – you just might find the swells to be quite enjoyable as well as profitable.
3. “Noise” is Irrelevant:
You might hear a lot of misconceptions and confusing terms related to finance and mutual funds when you begin your investment journey but they’re nothing you should be alarmed about. Instead of panicking about these technicalities, it is a good idea to speak to your Fund Manager and have them explain the nitty gritties. These terms are nothing more than “noise” which means they should not distract you from gaining profitable returns which is the end goal. Start slow, start small, start with a basic product and learn as you go along.
If you keep these things in mind when beginning your investment journey, you and your investments are good to go on the way to make profitable returns.