mutual fund
If you are thinking of investing in mutual funds for the first time, or till now you have been investing money in fixed deposits, RD or other secured schemes and now want to join the stock market, then the most important thing is to make the right start. Instead of investing huge amounts in a hurry, it is better to proceed wisely. Because it cannot be predicted when the market will change.
The best way for new investors is to start with small amounts instead of investing the entire amount at one go. For this, Systematic Investment Plan i.e. SIP is an easy and safe option. In SIP, you invest a fixed amount every month, which reduces the impact of market fluctuations and gives you the benefit of cost averaging. This also prevents you from taking wrong decisions due to emotions.
It is important to understand asset mix
The right portfolio means that your money is invested in different places in a balanced manner. This is called asset allocation. Typically a portfolio may include equity (share market related schemes), debt (bonds or fixed income), international investments and gold or other precious metals.
If you are young and have seven years or more to invest, then you can keep more stake in equity funds. On the other hand, if you want to take less risk, then debt and multi-asset funds can be a better option. Your investment style depends on your income, expenses, goals and risk tolerance.
Which funds to start with?
New investors can start with diversified equity funds or index funds. Index funds follow major market indices like Nifty 50 or Sensex, hence the risk associated with the fund manager’s decisions is less. Those who do not want too much volatility can choose multi-asset allocation funds, which have a mix of equity, debt and gold.
Build a core portfolio first. That means choose such funds which will stay with you for a long time. Later other categories can be added according to need and experience. If an investor is willing to take more risk, then he can gradually add a little stake to the mid or small cap fund, but this step should be taken wisely and only after experience.
Is equity the only option?
It is not that equity is the only way to invest in mutual funds. If you want to park money for a short period, or are confused about the direction of the market, you can also consider arbitrage funds or short-duration debt funds. The risk in these funds is relatively low and they can give better returns than savings accounts. Debt funds can be useful especially for those people who fall in low tax bracket.
When to choose mid, small and thematic funds?
Often new investors invest in mid-cap, small-cap or funds of a particular sector in the greed for higher returns. But there are more fluctuations in these categories. Therefore, these are not considered the right option for beginners. Only when you understand the market and feel comfortable with the risk, make limited investments in these funds. Keep only a small part of the total portfolio for such funds. Depending too much on one sector can be dangerous, because it is not easy to buy and sell at the right time.
Disclaimer: This article is for information only and should not be considered as investment advice in any way. TV9 Bharatvarsha advises its readers and viewers to consult their financial advisors before taking any money-related decisions.