Tips to invest in mutual funds
Mutual funds have advanced over the years and made its space prominent in the investment world. Mutual fund collects fund from investors with similar financial objectives and invests them in a portfolio of securities (equity, debt and the combination of both) with a clearly defined investment objective. There are thousands of mutual fund schemes available in India but the process of investing in them might be a little overwhelming for a new investor. Here are some of the tips that would guide you towards mutual fund investments.
Risk Profile
This is the first step while investing in mutual funds or for that matter, in any investment avenue. Assessment of your risk profile will help you to understand as to how much risk you are able to afford. In turn, this will help you to choose products which match your risk-taking ability. Hence, first you need to assess your risk profile.
Investment Horizon
The next thing you need to do is to determine the time horizon for which you wish to remain invested. This also works as one of the factors in selecting the asset class that would be appropriate for the desired investment horizon. For instance, if your investment horizon is short-term then, investing in debt mutual fund would make sense. On the contrary, if it’s long-term then, dedicating more assets towards equity would be prudent. Understanding your financial goals will help you to know when you require money and accordingly, you can plan your mutual fund portfolio.
Asset Allocation
Asset allocation is a key to diversify your investment across asset to reduce risk. It is rightly said that, “Never keep all your eggs in one basket”. Similarly, never park all your money in one investment. Hence, before deciding onto which product to invest, determine your asset allocation. Once you have determined your asset allocation, you can move ahead with selecting the mutual fund that fits into your risk profile, time horizon and asset allocation parameters. Also, never forget to rebalance your mutual fund portfolio annually, to adhere to the asset allocation proportions.
Seek expert’s advice
Indeed, if you don’t have time to manage or in case, you are finding it much difficult to manage, then you should seek an expert’s advice. They would not just help you in selecting the suitable mutual funds but also, help you to manage your mutual fund portfolio and from time to time, advice various actions that you need to take.