Mutual Funds : Crucial Items to consider Prior to Investing

Stock Market is a term which evokes a spectral range of emotions in various people. Some strongly feel it’s just gambling, some people feel it’s a certain fire way to lose money. Several get a high on trading in stocks all day long long. Some use it wisely to improve their wealth. The fears associated with the stock market have come down significantly since early nineties and now a lot of people feel comfortable purchasing the stock market. The content is specific for Indian investors though all of the ideas expressed are universal.

Purchasing the stock market requires careful study, constant review and quick decisions. Cherry picking an investment and keeping yourselves กองทุนบัวหลวง updated about the company and timing your buying and selling can take up an important part of one’s time. This is where in fact the Mutual Fund industry can lend you their hand. A Mutual Fund is managed by way of a Fund Manager and a team of analysts who take their time and energy to study the stock market and invest your money. It saves you from all the hassles of stock market investing and you might also need somebody to look after your money.

The Mutual Fund industry has come a long way since its introduction in India in early 90s. Mutual Funds provide a variety of options according to your risk profile to obtain high tax effective returns. Having said that, I would caution readers that purchasing mutual funds also needs a bit of effort from your own side. Engaging in the wrong mutual fund at the wrong time can destroy your wealth. The risks associated with purchasing any asset class [Stocks or Gold or commodities or bonds] are applicable to mutual funds also. For the more conservative investor, mutual funds offer experience of fixed income instruments through fixed maturity plan (FMP)/debt funds wherein your hard earned money is dedicated to debt instruments. FMPs/Debt funds tend to be more tax efficient than direct investment in FDs or bonds/debentures etc. I give below some points that ought to be taken into account while purchasing mutual funds.

a. If you’re looking at investing money for the temporary (1-3 years) and want the very best tax efficient return then choose Debt funds/FMPs.

b. If you like experience of stock markets then understand that stock market returns can be performed only over the future as markets usually see- saws by having an upward bias over the long term. So you could have to stay for more than 5 years. Do not check your NAV(Net Asset Value) everyday and feel excited or melancholic due to the erratic movement.

c. There are more than 30 fund houses (AMCs) offering a lot more than 700 schemes. Pick the AMCs which were around for quite a long time (5-10 years would have been a good metric). Do not diversify an excessive amount of and stick to good fund houses. The important points of fund houses can be found in the website of Association of Mutual Funds of India. You can even have the rating of each mutual fund with this website. Always check to see if the AUM (Assets under management) is high; this ensures that the Mutual Fund has the flexibleness to have a hit just in case one or two companies that they had dedicated to enter trouble.

d. Remember that past performance isn’t helpful information for future performance. Choose consistent performers.

e. Choose New Fund Offer [NFO] only during a substantial downturn as this enables the fund to get into stocks at lower prices. For Debt funds choose NFOs when interest rates start peaking. Do not enter an NFO because you are swayed by the smart ad in the media. Usually NFOs give attention to the flavor of the season to tempt you [Commodities, Green Energy, Emerging markets etc].Some may play out; some will die an all-natural death. So exercise abundant caution.

f. The best time and energy to start an SIP is when the market starts showing a downward trend and the worst time and energy to panic and stop an SIP is when the stock market goes into deep decline. Actually this is actually the time when the actual investors rub their hands in glee. So you should try and boost your SIP amount when the market is really down and then once the market bounces back you can go back to your regular amount. Fix a foundation and set a target – e.g., for every single 100 point fall in Nifty index increase SIP by Rs. 1000 and reduce exposure similarly as the market bounces back.

g. Do not expect extraordinary returns. On a long haul basis mutual funds give an annual return of 12-15%.

h. Execute a review annually and check from sectors that you’re feeling have peaked out.

i. It is advised with an SIP in an index fund/exchange traded fund (ETF). An index fund invests in companies that form the specific index. For example if the index fund is on the basis of the Bombay Stock Exchange (BSE) Sensex, then it invests its funds in the companies that make up the index and the NAV tracks the BSE Sensex. This fund will also have a reunite that closely mirrors the return of the stock market. This is a very safe way and protects you from individual gyrations in stock price of an organization or sector. The stock exchange will promptly replace an organization from the index just in case it starts underperforming and your fund does the same. So you are always assured of a reunite very near the market return.

j. Do not confuse an insurance product which invests in the stock market with a mutual fund. They’re two totally different products. Insurance products have high charges and give far lower returns than a mutual fund.

Mutual funds are ideal for people who do not need the time or patience to take the time and effort needed for successful stock picking. They offer the investor a broad selection of experience of different asset classes and sectors according to risk profile and if chosen wisely can provide extremely satisfying returns to improve wealth.

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