- Goal-oriented strategy
- Time-oriented strategy
- Importance of budgeting, research, understanding your risk preference, and reviewing your investments
If you are one of those people who believe in saving for a rainy day, then there are extremely high possibilities that you have invested your hard earned money in mutual funds. A wide range of audience believes in the fact that Mutual Funds can help you attain the financial nest that you would want for your future.
However, first time investors are not really sure how to get there. One of the major conundrums that most investors face is understanding the best strategy for themselves. Now, financial gurus would have a list of pros and cons that can help you. However, what you need to remember before you follow any advice is that each individual is different and not every person can follow the same advice.
So what strategy should you follow if you want to invest in Mutual Funds?
- Stick To the Goal: The success of any investment is the achievement of the financial goal. Without a goal, there is no purpose in investing your funds. The first strategy to investing in mutual funds is understanding your want and deciphering it from your needs. This is when you will get a better idea as to the purpose of investment. Investing without a goal will make no sense if you do not know what you want to do with your hard-earned money. Also, understand the importance of the goal. If you have multiple short-term goals that you want to achieve at the same time, you will have to prioritize them.
- Decide a Time Frame: The first strategy and the second one go hand in hand. You need to draw out a timeline to figure out when you want to achieve your goals. Once you get a better idea about the goals you want to achieve, you will have to know when you want to see them being realized. This will narrow down your investment time frame as well.
- Start Budgeting: How much do you invest? Before you go ahead and set aside a limit, you will have to first create a financial budget for yourself. This would enable you to categorically segregate your finances. Create a budget in such a manner that your daily needs, as well as your future needs, are taken care of without any major compromise.
- Research: There are different products and tool available online that will give you a good idea about which mutual fund will be best suited for your needs. Unless you read about them, you will not know where to invest your money. Look at the historical data of the mutual fund you want to invest in. This will give you an idea about the trend the fund has followed in the past.
- Know your risk: How much are you willing to risk? Unless you know this there is no point in investing in mutual funds. The historical data will give you a good sense of how much risk the mutual fund has.
- Invest through a Systematic Investment Plan: There is enough written and spoken bout SIPs and one thing is for sure, it works. Start small so that you know that a limited amount is being invested in the mutual fund. Once you are sure of your growth trajectory you can increase your investments, depending on your needs.
- Review: This is one aspect most people tend to ignore. You have to review your investments so that you know what kind of returns you are gaining. This is also a good time to figure out if you should keep investing in the same mutual fund or diversify your needs.
The strategy is simple. Each mutual fund tells you a story about its growth and its trajectory. The idea is to read between the lines and get the best from the market. Of course, the best and most important strategy is to be patient and let your money work for you.