Adopt The Right Approach To Invest In MFs

Mutual funds are an efficient and a simple way to invest in the markets, i.e. both, equity as well as debt markets. However, selecting the right funds and that too in the right proportion is not that easy. Considering that there are hundred of funds, many of which follow different investment philosophies and strategies, it can be quite overwhelming for the investors to invest in the right way. It is, therefore, important to adopt the right approach while selecting the funds as that can go a long way in achieving your investment objectives. One of the ways to ensure success is to take help of a professional advisor. However, getting hold of a good advisor itself can be quite a daunting task.

If you are a mutual fund investor and have been following strategies that are based on certain misconceptions, it is time to have a relook at them and take corrective measures. As mutual funds in India are evolving, so are different investment strategies to get the best from them. If you have been taking help of an advisor and still find that your portfolio hasn’t delivered, it’s time for you to take stock of the situation and act. While an advisor can be crucial in ensuring long-term success, it is equally important to ensure that you are dealing with someone who has the ability and the knowledge to take care of your investments.

Many investors have a fancy for New Fund Offerings (NFOs). Many advisors too try to take advantage of this instrument. Not only they find it easy to convince investors to invest in NFOs, but also at times earn more money in the process. The key feature highlighted by them is ‘at par NAV’ as against much higher NAVs of existing funds. The fact, however, is that the performance of a fund largely depends on the quality of the portfolio, its exposure to various industries and segments such as large cap, mid-cap and small-cap as well as investment strategy followed by the fund manager. The logic that investing in any and every NFO guarantees success is completely unfounded.

However, it is not to say that one should never invest in NFOs. An investor’s decision on whether to invest or not should depend on what the fund has to offer and what he already has in the portfolio. The fund houses launch new funds to have a basket of products so as to cater to investors with different risk profiles, time horizon and investment objectives. Therefore, one can consider investing in NFOs if the scheme in question has some compelling features or follows an investment strategy where it need not be different like in the case of an index fund. A common investor generally needs to stay away from ‘specialty’ and ‘thematic’ funds. In a booming market, one comes across many NFOs that sound very attractive and investors often get tempted to invest in them. Therefore, one needs to analyze the features properly before taking the plunge.