Thinking of investing in mutual funds? If you follow these five things, great returns will come!
Save Money: The first thing that is required is to choose the right scheme. So that you can get the return you want.
For those who have already started investing, a mutual fund is one of the preferred investment mediums for them. Most people invest in mutual fund schemes to meet their financial goals.
But those who are investing for the first time, are quite confused about this. The idea of how to actually make or run this investment is not the same. So the first thing is to choose the right scheme. So that you can get the return you want. So it is important to keep these five things in mind while thinking about investing in mutual funds. It will give great benefits in investment.
Assessment of Risk Appetite and Expectations:
Before investing in mutual funds, the investor must assess his risk appetite and expected return from the investment. Accordingly, the mutual fund scheme should be chosen, which helps the investor to meet his financial goals as per his own expectations. For example, let's say an investor wants to build a certain size of wealth over the next ten years and has a very high-risk appetite. Hence he can choose a mutual fund scheme, which can give him high returns according to his risk appetite and help build wealth as expected to meet the investor's financial goals after ten years. Based on his risk appetite, the investor needs to understand the exact amount he needs to invest in mutual funds to meet certain financial goals.
Diversification of Investments or Diversified Investments:
If an investor invests his entire amount in one or two mutual fund schemes, his portfolio will be exposed to high risk. In fact, the investment portfolio should be diversified. That is, a diversified investment portfolio should be created in various mutual fund schemes of different mutual fund companies.
Adhil Shetty, CEO of Bankbazaar.com advises, “Making a sufficiently diversified portfolio will significantly reduce portfolio risk. However, it is important to keep in mind that it is best to avoid an overly diversified portfolio. Because it can reduce portfolio returns. Therefore, the portfolio should be diversified in such a way that the portfolio risk falls within the range of the investor's risk appetite and the investor gets the expected return.
Scheme Selection:
There are many mutual fund companies in the market. And every organization offers different schemes. The question is, are all these good for investment? And what is the best scheme to invest your money? Before investing in a mutual fund scheme one should evaluate the past performance of the scheme. Apart from this, management efficiency and expense ratio should also be studied. Apart from this, one has to compare various schemes and judge which one will give the best return to the investor. A direct plan is better to choose than a regular plan. Because their expense ratio is low.
Lump Sum Investment vs SIP Investment:
If the investor wants to invest a large amount of money, he may not want to take a high risk. So in this case, a proper debt fund can be a good option. And if the investor wants to get good returns with moderate risk, then he should invest in balanced funds. And if you want to get high returns, the investor has to take a high risk. In that case, he should invest in large-cap equity funds. One should invest one's money in different mutual fund companies and different schemes. If the investor wants to reduce the risk, then he can keep the large amount in a liquid fund and invest it passively in the right mutual fund scheme using the STP option.
If an investor wants to build wealth by investing in monthly installments for a long period of time, then he can do a Systematic Investment Plan or SIP in the right equity fund as per his risk appetite. You can get very attractive returns through SIP. SIPs are good for long-term returns, especially in volatile market conditions.
Revaluation and Rebalancing of Portfolio:
When an investor invests in a mutual fund scheme, he should re-evaluate his portfolio time and time again. Along with that, how your investment is going, you have to pay attention to that aspect as well. Sometimes it may not perform as per the investor's expectations, while sometimes it may even surpass the investor's expectations. If the performance of the scheme lags behind the investor's expectations, then money should be withdrawn from the underperforming fund and invested in the better-performing fund. On the other hand, if it is found that the investor's portfolio has exceeded his expectations, then the investment should be switched from high-risk schemes to low-risk mutual fund schemes. And along with that, the returns that have been received should be kept safe.
Apart from this, before investing in mutual fund schemes, it is very important to know the taxes charged on long-term and short-term investments in various mutual fund schemes. It is better to invest in mutual funds at an early age. In this, the investor's money is invested for many days, as a result, the amount of return also increases a lot.
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