Investing in mutual funds can be considered as one of the simple, yet convenient ways chosen by individuals with an aim to create wealth and to achieve their financial goals. There are certain factors that need to be kept in mind when making an investment in mutual funds, because as an informed investor, you should be aware of all the aspects of your investment.
Let us divide these factors or do’s and don’ts into three segments –
- A. Before Investing,
- Clearly define your financial goals/objectives
- Understand your risk appetite and decide upon a time horizon for which you wish to remain invested
- Choose a mutual fund scheme after aligning it to the above points. Also ensure that you are KYC (Know Your Customer) compliant before your begin investing
- Don’t begin investments in haste
- Don’t focus on hearsay when choosing a mutual fund scheme to invest in
- Don’t ignore going through the fund factsheets and all the scheme related documents before choosing a mutual fund scheme to invest in
B. While Investing
- Choose a mode of investment (either Systematic Investment Plan or SIP, Lumpsum Investment, etc.) that suits you best
- Get a thorough understanding of the expense ratio and any other charges that may be applicable to the scheme you wish to invest in
- Keep a track of your Consolidated Account Statement (CAS) and any other updates about you on-going investments
- Evaluate your investment portfolio at periodic intervals and choose whether you wish to diversify them further in keeping with your evolving financial goals
- Refrain from basing all your investment decisions only on the past or present performance of a mutual fund scheme
- Don’t invest all your funds at one go, rather create a sound investment strategy while investing
- Don’t get attracted by market rumours and invest without taking stock of your goals, risk appetite and time horizon
C. When Redeeming
- a) Choose to redeem your investment only when your investment objective is achieved
- b) Understand all the tax implications applicable for your scheme as well as the exit load (if any) when you redeem
- Don’t give in to panic buying or selling
- Don’t choose to redeem right away if your fund may show any negative returns. Factor in the volatile nature of the markets while investing as well as redeeming
Starting early, investing regularly and staying invested for the long run with an aim to get create wealth – can be considered as a prudent strategy when it comes to mutual fund investments. Investors can seek the counsel of their financial advisor for the same.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.