The year 2010 turned out to be a good year for mutual fund investors.  Equity funds, an ideal bet for long-term investment objectives, gave an average annualized return of around 18 per cent. Even conservative options such as short-term debt funds and Fixed Maturity Plans (FMPs) as well as debt-oriented hybrid funds like Monthly Income Plans (MIPs) also helped investors to earn healthy returns. However, as the year 2011 begins, investors are faced with the dilemma of choosing the appropriate investment mix that could give them good returns over the next 12 months.  

Though the beginning of a new year can be a good time to consider any changes in one’s investment strategy, the key to success remains an interrupted focus on investment objectives. Any abrupt reshuffle in the portfolio based on the likely market scenario could seriously harm one’s chances of achieving long-term investment success. 

While rebalancing the portfolio, i.e. bringing investments in equity and debt instrument back to one’s defined asset allocation levels is always a sensible thing to do; doing so in anticipation of the market behaving in a certain manner may not be the right thing to do. With the ever-present bull and bear markets it is nearly impossible to predict the immediate economic scenario. Moving money from an asset class to another one to take advantage of the short-term market moves could be risky and also make one miss out on the short- to medium-term performance of the asset class in which the money was originally invested. 

However, investors yet to begun the investment process as well as those not following a well-defined investment strat-egy, the New Year can be a good starting point. Needless to say, they would need to focus on a few things:

• Any investment made without doing proper homework can prove to be very risky. It is important to consider while investing is how much risk one is willing to take. Besides, diversification over different asset classes, i.e. equity, debt, real estate and commodities, is important because not all investments perform at the same time. Also, it is important to select the right investment vehicle. This is where MFs have a role to play.

• For long-term investors, and those not familiar with equity markets, investing regularly through a Systematic Investment Plan (SIP) in an equity fund could prove a successful strategy.  It is a proven fact that a steady sav-ing and investing plan helps pursue financial goals. SIP means that you invest a fixed sum every month. 

• Remember, the real power of compounding comes with time. That’s why it is crucial to start investing early. Consider this: for every 10 years one delays before start-ing to save for retirement, one will need to save three times as much each month to catch up. Therefore, the sooner one begins investing, the better. 

• It is important to understand that the selection of right investment options depends on the time period for which one intends to invest and the amount of risk one can tolerate. Some of us are naturally risk averse and invest too conservatively, which impacts our ability to grow our savings and investments. 

A genuinely risk averse investor generally has a heavy bias towards traditional fixed return instruments. However, to improve post-tax returns, it is necessary to consider various debt and debt-related schemes of MFs which are more tax-efficient and liquid. 

Then there are balanced investors, who are willing to take some risk on their investment to improve their returns. Depending on your risk appetite level, MFs offer schemes like MIPs, Balanced funds and Fund of funds.

For an aggressive investor, there are many options avail-able from MFs. Apart from diversified equity funds there are opportunity funds, mid-cap funds, contra funds and various sector funds. It is generally perceived that only young people and those who have very few commitments invest aggres-sively. But the fact  is that investing in equity mutual funds on a regular basis not only improves overall returns but also ease the savings burden in terms of amount that one needs to save over a period of time.