There are 5 things to consider when choosing the right mutual fund for yourself | Jobs Vox

Beating inflation and creating a much sought-after body is not possible in traditional investment opportunities alone. There is a huge demand for people to invest in the stock markets now, which not only provides market-linked income but also allows for adequate corpus accumulation. However, the wrong choice of mutual funds has led many investors to record losses or make disastrous returns that are inconsistent with their financial goals. This also explains the importance of investing in the right mutual funds to achieve financial goals in time.

Much depends on why you invested in the first place. You may be investing to earn money for your post-retirement phase or any other life goal like buying property, children’s higher education, marriage, etc. Also, different mutual funds have different risk profiles, thus clarifying the idea of ​​investing in equities, debt, hybrid or fixed income schemes. Another, your risk appetite says a lot about how long you want to invest or how often you jump from one fund investment to another.

Focus on financial goals

Choosing the right mutual funds can be difficult. There is no one-size-fits-all approach, which means you should know why you should invest in a particular fund. To begin with, your financial goals will define your choices. This translates to how much income you expect from this fund and what it is for. For example, if you are a 28-year-old mutual fund investor and want to retire at age 60, you must be willing to invest continuously for the next 32 years. However, this means that you are pulling your money out of equity investments until you turn 50, post it, put your money in a safe place, i.e. equity funds or debt funds.

However, goal planning is not enough. Be sure to be prepared with your choice of mutual funds and invest for a predetermined period. Planning to be a long-term investor is different from being a long-term investor. Don’t be fooled by the constant ups and downs of the market. You should be firm with your investments considering how the purchasing power of money will deplete over time, thus, motivating you to earn more income to overcome the destruction of your savings.

Appetite threat

It’s one thing to be bold on paper and another to be bold in the market. The stock market has knocked some of its fiercest bulls to the ground, raising the alarmist bears to an enviable level. Taking risks has nothing to do with the money you expect to make from the market, but rather sticking to your guns even if the financial results are not what you expected. Some people have higher appetites than others. They continue to invest through Strategic Investment Plans (SIPs) irrespective of the market. They are more focused on their goals than their journey, which explains their consistency in investment. Age has a lot to do with risk appetite. Investors should always assume a lower level of risk in their approach to investing once they reach their financial goals or approach retirement age.

Investment horizon

If you start investing too late in life, you may not want to convert investments into a crore corpus. Likewise, you may not want to explore stocks if you don’t have a long investment horizon. Although statistics show how stocks have pushed many people’s fortunes to remarkable heights, it’s worth investing some money in debt and hybrid instruments, especially if you’re nearing retirement or have a short investment horizon. Certain debt funds like overnight funds, liquid funds, ultra-short duration funds etc. are suitable for very short investment periods (less than one year). As a result, choose mutual funds according to your investment objectives.

Why do you want to invest?

Thinking of getting a corpus or a regular source of income? Opt for equity funds for capital appreciation and overnight or liquid funds for regular income. You can choose from a variety of equity funds that earn you interest on top of your deposits while allowing you to systematically withdraw some money every month. You can also choose a dividend fund that allows you to benefit from the distributed income over a period of time. Many investors are confused between dividend and growth options, thus prompting them to seek professional advice.

Expense ratios

You need to focus on savings at every step, which is why ignoring a fund’s expense ratio can cost you dearly. Index funds are passive mutual funds, thus explaining their low expense ratios. However, while actively managed mutual funds cost more, their fund managers are figuring out how to generate alpha returns over the long term. While that may be true in some cases, the higher expense ratios charged by some asset management companies should not mislead you into thinking they are more efficient than others.

There are countless other factors that can affect your choice of mutual fund(s). Why you chose to put money in one fund over another is something you should explain to yourself better than others. Seek advice, but don’t blindly fall for so-called social media influencers. Ultimately, choosing the right mutual fund depends on how much you expect from your investments.


Investors can invest in LSS mutual funds to save income tax.

First published: December 23, 2022, 08:16 am IST

Source link