New to mutual funds? What should be your approach to MFs?

Despite being aware of what mutual fund is and how it works, people are still in dilemma as to what should be their approach with regards to mutual funds. This is for the fact that they have no prior experience with mutual funds. In this case, there are many things to consider before investing in mutual funds. People should know the risks that are involved while investing in mutual funds. As you may know, mutual funds are not only subject to market risk, as advertised, they are also prone to other systematic and unsystematic risks.

When it comes to risk, the basic thing to start with is with assessing your risk profile. There are lot many websites nowadays which provides you with the same. Even you can find them on AMC websites. Note that even SEBI (Securities and Exchange Board of India) has mandated SEBI RIA (Registered Investment Adviser) to get risk profile assessed and recommend investments based on the same. So, it is wise to get it assessed before investing in mutual fund or any other investment product for that matter. Another thing you should do is to get a financial plan. This will help you decide the time horizon you need to invest in a particular product. So, consult your financial planner and have a financial plan with you.

But still, if we assume that you just wish to experience the mutual fund as a first-time investor then it is better to invest in a balanced hybrid fund which invests between 40 per cent to 60 per cent of the assets in equity and equity-related instruments and between 40 per cent to 60 per cent in debt securities. This would be ideal for first-time investors as this invests in both equity as well as debt. So, being new to mutual funds you would be able to experience the wonders of equities, but at the same time can restrict your losses with debt.