MF investing rules for newcomers

The recent market situation has led to anxiety, especially in the minds of new mutual fund investors. They are not aware of what to be prepared for and what to expect. However, it should be accepted that understanding financial behavior is key to success in mutual fund investing.

Thus, this article enlists a few rules of mutual fund investing for newcomers so that they can take good decisions in a calm manner.

1. Buy and hold

A general assumption made by investors is that investing in mutual funds is just like investing in stocks. However, it is necessary for this misunderstanding to be cleared up.

Stocks are individual investments, whereas a mutual fund is a portfolio of different stocks. Therefore, mutual fund investing follows the rule of ‘buy and hold’. It is recommended to hold till either your investment objective is fulfilled or the fund is no longer working according to your plan.

2. Disciplined investment

Another core requirement of mutual fund investing is discipline. Various studies have shown that investing in a disciplined manner helps in the generation of wealth in the long-term. Hence, it is advisable to stay invested in a disciplined manner. Lump-sum investments have proven to be effective in the long run but, in case it is not possible to deposit a lump-sum amount upfront, we can consider investing via a Systematic Investment Plan (SIP) wherein an amount is invested regularly, on a monthly basis.

3. Diversification

One of the basic and crucial rules to abide by while investing in mutual funds is diversification. One must avoid scenarios of single focused investing. Such investment opportunities carry higher returns as well as higher levels of risk. While it can lead to returns skyrocketing at one point in time, it can as easily lead to severe losses and disturb our peace of mind at another time. Therefore, to have a better and more stable investment experience, it is important to diversify among various asset classes such as equity, gold, debt, etc.