4 factors to be considered before investing in mutual funds
Mutual funds, today are considered a preferred choice among investors owing to the attractive returns. As per recent statistics, the Assets Under Management (AUM) of the Indian Mutual Fund Industry stands at Rs.26.33 trillion as of 31st October 2019, compared to Rs.7.75 trillion in 31st October 2009. The 3½ fold increase in 10 years reveals the popularity of mutual funds.
If you are familiar with what is a mutual fund, you may already know the benefits of mutual funds. However, it is also essentialto know that mutual fund investments are subject to risk. Although it involves risks, it does not necessarily lead to losses. If you exercise prudence, research well and choose the right scheme, you are likely to make profits than anticipatelosses.
This article guides you about the factors you can consider before investing in mutual funds.
- Investment objective
Before you decide to invest in mutual funds, understand the purpose of your investment. With a defined investment goal, it can become easier for you to accomplish it with a mutual fund investment. The objective of your investment could be purchasing a house, your child’s higher education, a medical emergency, retirement corpus or any other purpose you seek to achieve in the short or long run. Once you know your investment goals, you can choose a mutual fund scheme that aligns with your objective.
- Time horizon
An important thing you may want to consider is the time frame of your investment.This is especially important because different types of mutual funds work best for different time horizons. For example, if you have a long term investment horizon with the objective of capital appreciation, you can consider equity-oriented mutual funds with a decent risk appetite. Likewise, if you are a cautious investor, you can consider regard mutual funds.
- Risk tolerance
In order to optimise your investments, you may want to look into your risk-taking ability before you choose to invest in mutual funds online.One can assume a higher risk when investing at an early age, but as you near retirement, your risk tolerance could reduce.
Typically, investing in a well-performing high-risk fundcan offer stable returns. Besides, diversifying your portfolio can help you mitigate the risk to some extent. You can structure your portfolio as per market capitalisation (i.e. large-cap, mid-cap, small-cap and multi-cap).
- Fund manager’s experience
It can be a good idea to know more about the fund manager’s background and how long he/she has been at its helm. You can do so by going over the fund’s past performance or other funds managed by them. This can ensure your hard-earned money is in safe hands.
Investing is a meticulous task, andhence, it is crucial to be prudent before you act. Considering the factors mentioned above can help you invest wisely. Moreover, a disciplined approach to investing can help you reap mutual funds benefits and build wealth in the future.