Mutual fund investments have gained a lot of popularity in the last few years. The increased literacy rate amongst the millennials and Gen Z is probably one of the reasons for this spike. Also, given the flexibility mutual funds offer, people are choosing them as their preferred investment choice.
However, there are thousands of mutual funds available in the market. Also, there are various ways in which you can invest in these funds. You can put in all your capital at once as a lumpsum investment or you can even opt for small contributions every month known as a systematic investment plan or SIP depending on your income and capital. There are multiple factors which you need to evaluate before planning any investment in mutual funds. Today we will take a look at some of the rules which one must adhere to for being a successful mutual fund investor.
The golden rules to follow for investing in mutual funds includes number of pointers. So without further ado, let us take a look at each one of these and help you in investing in mutual funds.
Table of Content
Mutual Fund Investment Strategy
1. Evaluate Your Financial Goals
Before investing your money, it is important to have transparency with your financial goal. If you have a clear financial goal, you can align your investments with it in order to make the most out of them. Planning your investments based on your financial goal will also help you in selecting effective investment plan for your needs.
2. Decide on Your Investment Horizon
When you have a planned financial goal, you probably have an idea about your investment horizon. Now, you can choose from short term to long term investment options as per your need. For example, if you want to save enough corpus for your retirement you should choose long term plans whereas for accumulating funds to pay upfront amount for your own house, you need a short to mid term investment plan.
3. Check Performance Consistency
Before you choose any mutual fund, you should check its performance for the last few years. A fund which has delivered a consistent performance over a span of last few years will be a safer bet when compared to those which have delivered inconsistent returns. Consistent average performance is always better than inconsistent extra-ordinary performance.
4. Types of Funds
There are numerous types of fund available in the market. However, it is recommended that you stay away from sector funds because they do not provide portfolio diversification are more prone to sectorial risks. You should always look for funds which have proper portfolio diversification to protect your investment against sectorial risks.
5. Emergency Funds
If you are accumulating corpus for a long-term goal such as retirement planning, you should have a separate emergency fund in place. An emergency fund will help you sail through all the emergencies in life without digging into your long-term investment.
6. Periodic Monitoring
When you invest in mutual funds, it is very important to regularly monitor your investments. This should be done annually or half-yearly. The performance of the funds should be evaluated regularly. IN case if a fund is not performing as per the expectations, you should look out for potential replacements.
7. Investment Advisors
An An investment advisor can help you in investing by sorting out all the above rules for you. Your advisor will evaluate your investment goal and suggest your investment options based on the same. They usually have a better idea about the latest offerings in the market and provide you with the best investment options. They regularly monitor your investments and suggest your necessary amendments from time to time.
Conclusion
These are some of the golden rules which can help you in planning an effective mutual fund investment strategy. As an investor, you must always be aware that no strategy or investment can guarantee you return. Almost every investment is prone to market risks and the value of your investment can go up or down depending on market movements.
Happy Investing!
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