Explore Top Mutual Funds To Invest In India

An individual’s risk appetite may depend on his income, expenses, liabilities, dependents, taxability, age and willingness. 

Hence, you should first determine your risk-taking ability and willingness. Most individuals make mutual fund investment plans on suggestions from friends or colleagues or seeing it on advertisements without understanding the risk defined for the mutual fund scheme.

In order to evaluate various mutual fund schemes, it is important to consider the scheme’s investment objective and strategy. Both of these can help in understanding what to expect from the scheme and if it’s suitable for your risk profile. You should read all the scheme related documents thoroughly before investing. 

Mutual fund investment plans made on the gut feel or on the basis of past performance can be extremely risky. 

During market boom, most funds tend to perform well. And when the market corrects, schemes you invest in may give negative returns. Also, a top performing mutual fund may not remain top performer forever or near the other top performers. Hence, investing without proper research may not be a wise approach.

You may use the data available in scheme documents such as Variance, Standard Deviation, Beta, Mod Duration, Sharpe Ratio, Treynor Ratio, Jenson’s Alpha, Tracking Error, etc to measure the risk and expected returns of investment in a scheme and for comparison with other schemes.

An individual who does not have sufficient cash in hand to pay for their daily expenditures or immediate liabilities may not be able to hold their mutual fund investments for a longer period. 

The mutual funds schemes are best suited to those who have a long-term holding vision. Cashing out on gains or booking a loss quickly due to lack of liquidity is not recommended for long term wealth generation. 

You can overcome this challenge by creating an emergency liquid fund, having adequate Insurance cover and making provisions for all near term liabilities before planning an investment in a mutual fund scheme for a longer time horizon.

Investments are subject to market volatility in mutual fund schemes. When markets rise, your mutual fund investments go up in value. And during the market fall, the value of your investment goes down too. 

However, historical data shows that markets have rebounded and gone up over the time. Selling your mutual fund units in panic due to poor performance in the short term isn’t the right way to invest.

Checking your unit NAV daily or weekly isn’t a good habit, we recommend holding the units of your mutual fund investments for at least a year. As rebalancing of long-term investments is recommended on a yearly basis.

Mutual fund schemes offer investment options like SIP (Systematic Investment Plan), SWP (Systematic Withdrawal Plan), STP (Systematic Transfer Plan) and Lump Sum. 

Choose an investment option based on your financial goal:

Wealth creation – It is a long-term goal and so it would be best to make mutual fund investment plans in SIP as you can avail the benefit of rupee cost averaging on the units you get.

Nearing Retirement – You may start mutual fund investments through STP which would ensure that the asset allocation from equities is reduced on a regular time interval and is adjusted to bonds and other debt instruments, ensuring reduction in risk at regular time intervals.

On Retirement – You may opt for mutual fund investments through SWP which would provide a regular withdrawal and a constant cash flow to manage daily expenditures.

Lump Sum – You may have inherit wealth from a closed one which can be invested as a Lump Sum.

Both taxes and expense loads reduce investment returns. You should consider these two aspects during repurchases/redemptions and must assess the implications of capital gains tax and exit loads.

While applying for investments in a mutual fund scheme, an investor often forgets to mention their nominees. Nomination helps the AMCs managing the mutual fund scheme to transfer your investments to the legal heirs smoothly, which otherwise is a long and time-consuming legal procedure. You can add up to 3 nominees in a mutual fund application and also specific asset allocation to each nominee.

There are thousands of mutual fund schemes available for investment resulting in a problem of choice. 

Moreover, not everyone has the required knowledge of doing their own research. Some may not have the time and willingness to do the research and rebalancing. 

Hence, it’s important you consult a AMFI Certified Mutual Fund Advisor who has the expertise and knowledge to assist you in mutual fund investment plans by providing advice on appropriate scheme selection, procedure to apply and withdraw from a mutual fund scheme and rebalancing your Portfolios on regular time intervals.