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A Beginner's Guide to Mutual Fund Investment

While there are multiple investing avenues open for investors, mutual funds have the capability to provide you with a range of options varying in risk profiles, sectors you can invest in, investment strategies, investment horizons, etc. But if you’re yet to invest in them, you may have concerns about exploring this new avenue.This article presents some considerations that you need to assess before you go ahead with that first investment.

Things to undertake

There are many advantages of mutual funds. You get the benefit of professional money managers whose sole job is to search for suitable investment opportunities – something you may not have the time or the expertise to do. They are hassle-free to invest in and offer a convenient way to benefit from the financial markets. Facilities like systematic investment plans (SIPs) make you disciplined in investing and help you benefit from the power of compounding besides taking advantage of rupee cost averaging.

But to benefit from these advantages of mutual funds, you need to undertake some steps at your end.

Investing Objective - Firstly, you need to have an objective or goal. To put it simply, you need to know what you’re investing for. And this answer needs to be more specific than ‘to grow my wealth.’ A specific objective is buying a car or for retirement. Further, there needs to be a number attached to it. For example, ‘I need to have Rs 15 lakhs 10 years from now for my child’s college education.’ The nature, tenure, and requirement of the goals help you or your financial advisor determine the right funds for you. Skip this step, and you’ll not find investing very rewarding.

Risk Appetite - Secondly, you’ll need to see the level of risk you’re comfortable taking.Alike any financial market security, mutual funds come with risk, including that of capital loss. The level of risk is not the same, though. Even among equity funds, there are funds of different grades of risk available. The reason this is important to know is so that there is parity between what you’re okay with and the fund you’ve invested in. Too much risk and you’ll want to move away, and too little risk and you’d be limiting the growth your money may have experienced otherwise.

Knowledge and Awareness - Thirdly, even if you’re taking professional help while investing, learn a bit about funds and investing yourself. Things like the expense ratio of a fund, its past performance, investment objective, among other details, are easily available for you to read. Knowing them would help you take better decisions. Being aware of facilities like SIP, systematic transfer plan (STP) etc., is also important.

Patience - Fourthly, give some time to your fund to perform. Mutual funds are market-linked instruments; they help you benefit from markets but do not control them. To see whether the investment is benefitting you, you’ll need to be patient with the fund, and stay invested as per the investment horizon to really understand the benefits. Staying invested for a short time and moving on to another fund will not serve any purpose.

Things to avoid

Patience Again! - Well-managed mutual funds can be a great ally, but don’t consider them as a quick fix. They are not designed to give phenomenal returns in a short time. Take your time in choosing your fund and have faith in its fund management team. Don’t try to time the market; SIPs are designed so that you don’t need to do that.

Avoid panic selling during difficult times - As an investor, you will certainly experience uneasy times. Mutual funds are diversified to try to limit any decline. As an investor, you need to ride out the tough times to benefit the most from them.

Don’t forget to rebalance - Keep reviewing your funds’ performance and suitability, given your goals, and if they don’t fit anymore, choose otherfunds that do.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, affiliates or representatives (“entities & their affiliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully

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