Awareness of mutual funds increases day by day not in big cities but also in Tier-2 & Tier-3 cities. Mutual funds are great tool for wealth creation. But there are common questions arise the investor’s mind while investing in mutual funds.
1] Which are the best mutual funds to invest?
There is nothing called ‘’BEST’’. There are thousands of mutual funds available for investment. Indian mutual funds have 3 main categories i.s Equity, Debt and Gold with sub-categories. You should select mutual funds based on two fundamental factors- Risk Taking Capacity & Investment Time Horizon. One you have clear answer of these factors, it eases your process to select mutual funds.
2] My mutual funds portfolio is showing negative return since last one year. Should I sell them?
Firstly, you should understand mutual funds are market linked investment product. There is nothing called “Safety” in your investment. When you invest in equity related funds, make sure you have long term time horizon subject to your risk profile. Here, long term means at least 100 months plus time horizon. This is not a fixed interest given product. If you want to create wealth, you should have long term view in mutual funds investment.
3] Is it right time to invest in equity mutual funds?
No one predicts the timing of the markets. You may invest through Systematic Investment Plan (SIP) that allows investors to invest at regular intervals. When you are investing for a long time, a huge fall in a day or two doesn’t matter. Even a bear phase lasting a long period would work to the advantage of long term investors, as it helps to buy stocks at lower prices. Also, the power of compounding would help you to make a large corpus over a long period.
4] I want to change my funds as I am invested since last 3 years.
It is always recommendable to review your mutual funds portfolio periodically. You should understand that mutual funds investment is an indirect investment in the market. There are fund managers who manage funds on your behalf. If your funds perform well or you have enough time for your goals, then you should continue your investment because unnecessary churning of funds will not benefit you. Remember the ultimate fundamental factor; your investment should be based on your required time horizon or goal. Just because you are investing since last 3 years, it does not make sense to change funds unnecessary.
5] I want to invest in highest return generated funds.
It is like driving a car by seeing in back view mirror. Past performance if any funds gives you a track record or journey but it is not always a true picture. For example, fund X gave 20% return in last year which does not meant you just start investment blindly in fund X. Each fund has different strategy an objective. Fund selection needs proper research. You should not star investment by considering “Star” ratings only or friend’s suggestions or online reviews.
6] I want to invest in fund “A” as my friend is investing in it:
Never try to copy someone’s portfolio while mutual funds selection. If your friend is investing in fund “A”, it does not mean that fund “A” you also start investing in it. Each one has different risk taking level and investment purpose. If your friend is taking medicine of hyper tension, will you be start taking the same medicine? You answer is obviously NO. First Understand your objective, time horizon and risk taking capacity.
Selection of mutual funds required proper skills and expertise. You can subscribe my “Investment Planning Though Mutual Funds” service for informed mutual funds investment decision or review your existing mutual funds portfolio.