How should a newcomer invest in mutual funds?
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A new investor who doesn’t know much about investing in mutual funds should seek the help of a mutual fund advisor. It is very tempting to take care of your investments on your own. However, it is not an easy task. Apart from the sound knowledge about mutual funds and basics of investing, you should also have the time and discipline to take care of your investments. Most new investors tend to get frazzled when the market gets into a bad phase. Most often they stop or abandon their investments in a hurry. That is not a great way to create wealth. It is extremely important to continue with your investments to create wealth. You would do that only if you have the confidence to stay invested. A seasoned mutual fund advisor can be of great help on that front.
So, find out a good mutual fund advisor. Ask your friends and colleagues for reference. Gain enough knowledge and experience before you start taking care of your mutual fund investments on your own.
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You should always choose mutual funds based on your goals, time in hand to achieve those goals, and risk profile. As a rule, stick to debt mutual funds to take care of your short-term goals that are a few years away. For long-term goals, you may consider investing in equity mutual fund schemes.
Note, it is extremely important to choose debt mutual funds based on your investment horizon. For example, choose an ultra short duration scheme to park money for a few months. Opt for a short duration scheme to invest the money for a year or two. Similarly, choose equity mutual fund schemes that are in line with your risk profile. For example, stick to large cap mutual fund schemes if you do not have stomach for much volatility. If you have a moderate risk profile, choose multi cap schemes. Invest in mid cap and small cap schemes only if you have a very high risk tolerance and stomach for volatility.