Many conservative mutual fund investors want to invest a small part of their investments in equity to enhance their returns. However, their apprehensions about the higher risk and volatility in equity mutual funds prevent them from proceeding with their investment plans.
Most of the ups and downs in key benchmark indices are point-to-point returns. That means the data doesn’t capture your periodic investments through SIPs. For example, one-year return might be positive because it is looking at the movement of the index from one year ago. However, your SIP returns might be negative during the same period because you have been investing every month. The opposite scenario also could be true.
These are diversified mutual funds which can invest in stocks across market capitalisation. As per regulatory mandate, these funds need to have a minimum investment in equity and equity related instruments of 65%.
Should new mutual fund investors pick up only aggressive hybrid schemes and tax saving schemes (ELSS) as their first investment. Many mutual fund advisors typically ask new investors to opt for aggressive hybrid schemes or equity linked saving schemes.
First, aggressive hybrid schemes are recommended by many mutual fund advisors because they believe the unique portfolio of mix of equity and debt makes these schemes relatively stable in times of adverse conditions in the market. As far as ELSSs (Equity Linked Saving Schemes) are concerned, many advisors say the mandatory lock-in period of three years help investors to get used to the ups and downs typically associated with equity investments.
Many mutual fund investors spread their investments across all major equity mutual fund categories in their quest to diversify the portfolio. It is very common to see a modest sum invested in large cap, mid cap, small cap, gold, and so on. Is this the right strategy to diversify the mutual fund portfolio?
Mutual fund advisors say investors should always keep in mind the basic objective of diversification. They point out that the basic idea behind diversification is to invest across asset classes to reduce the overall risk without compromising on the returns. However, when you are spreading your investments across many mutual fund categories and schemes without giving it a proper thought, it often doesn’t result in optimisation of resources or maximising wealth.
How do I choose a mutual fund scheme? Many mutual fund investors never tire of asking this question. Mutual fund advisors believe if investors stick to the basics and do not attempt to do something fanciful, they can easily choose the best schemes for them.
Here is the scoop: you should always remember that you are choosing mutual funds to achieve your financial goals. So, start with identifying your various financial goals. Next, find out how much time you have to achieve those goals. Finally, assess your risk taking ability.
Most new investors want to invest directly in mutual fund these days. They believe investing on their own would help them to save some money on commissions and the money invested over a long period would be sizeable.
Often the question is framed wrongly. It is always about should I invest in direct or regular plan in a mutual fund scheme. Ideally, one should ask: can I handle my investments? If yes, you should proceed to invest in direct plans.
Investors with a short investment horizon and want higher returns that bank fixed deposit, can consider investing in debt mutual fund schemes. These schemes have the potential to deliver stable returns with lower risk.
Decide the asset class with your financial advisor that suits you, work backwards and calculate the amount you could invest through SIP or a lumpsum or a combination of both to reach your financial goals.