Investing in mutual funds requires understanding of the markets and patience. Investors today often feel overwhelmed with the different types of mutual funds available to them. This mightconfuse them in choosing the right types of investment for their investment portfolio. One of the biggest mistakes a retail investor might commit is choosing mutual fund schemes solely on the basis of their past performance. In this article, we aim to offer a checklist to follow for investors beginning their investment journey in mutual funds.
One of the biggest dilemmas faced by new investors is understanding the right time to enter the markets and invest in mutual funds. Though there are several investors who accurately time their entries and exits in the markets, timing the markets is a practice not ideal for novice
investors. Why, you may wonder. Well, timing the markets require adequate knowledge and understanding of the markets, which a new investor might not well placed with. So, what should new investors do? Well, they can follow the disciplined approach of investing of SIP
(systematic investment plan). Experts believe that new investors might benefit from beginning their mutual fund investment journey by investing in stocks of well-established companies. Even if you have a lumpsum sum of money lying idle with you, you can invest around 25% of that amount through lumpsum amount and delegate the remaining systematically over a period of time through systematic transfer plans or STP.
If an investor finds themselves in a position where the markets are touching their all-time highs, they might consider investing in large-cap equity funds or index funds. Mutual fund schemes that are more volatile to the markets such as mid-cap equity funds and small-cap equity funds must be avoided. An ideal portfolio mix for a novice investor could be achieved by investing in value fund, a flex-cap fund, and index funds. This will help to diversify the investment portfolio of the investor.
Irrespective of equity investments earning the title of pricey valuations, young investors might consider investing in equities and equity-related securities. However, they must ensure that they invest for a long term duration of at least 10 years or more. Some financial advisors also believe that investors entering the markets right now might consider investing in balanced advantage funds. A balanced advantaged fund, also known as dynamic asset allocation fund invest around 30 to 80% of their assets in equities and equity-linked securities depending on the prevailing market conditions.
Also, as a new investor it is easy to get influenced by market sentiments and compare mutual funds. However, this can prove to be detrimental for your investment portfolio. You must trust your research and fund manager and try not to be swayed by the market emotions. Irrespective of the types of mutual funds you decide to go forward with, you must ensure that the objectives of the funds are in line with your financial goals, risk profile, and investment horizon.
Happy investing!
