Have you for whatever reasons stayed away from investing in mutual funds yet? But now you feel that its time that you started investing in mutual funds, given all the advantages it seems to provide investors. While it is a good idea to invest in mutual funds, it may be a good idea to get a better sense of what to look for from mutual fund investments before you actually do that. Check out what the author of the article below urges you to read and understand before making a start. Team RetyrSmart
Not considered mutual fund investments so far but want to start now? Learn more before starting
- Don’t act in haste
You can’t make up for the lost time. That doesn’t mean you have to be in a tearing hurry. Many new investors choose schemes that they believe are great for them and then ask everyone around them whether they have chosen the right mutual funds to invest. This is a costly mistake. If you want to sell any scheme that is not suitable for you, you may have to pay an exit load and capital gains tax. This can eat into your capital if you are selling your schemes immediately. That is why you should do your homework carefully before investing.
Ask the right questions
First, find out why you are investing? Next, find out how much time you have in your hand. Third, find out how much risk you are willing to take. The answer to these questions would offer you important facts that would help you with your investment: financial goals, investment horizon, and risk profile. You should always choose mutual funds based on these three factors.
Can you take high risk?
Many new investors state or believe that they have a very high risk appetite. They reason that since they are young, they can afford to take higher risk. Yes, it is true that young investors have the luxury of time to recoup their losses if they suffer any. However, that doesn’t mean that everyone is comfortable to watch their investment lose value sharply, say, 50%. When that happens, many so-called young investors lose their nerve. So, do yourself a favour and do a proper risk evaluation.
Do not chase returns, ranks
Many new investors get enamoured by five-star rated schemes or the ones that are topping the return charts. This is not a great way to choose equity mutual funds. You should always look at the long-term performance of the scheme. You should see how it has performed over the years – looking at the performance every calendar year over a long period would give you a better idea. It is always better to invest in a scheme that has performed consistently over a long period. Remember, it is extremely important to manage the downside well – otherwise, you would lose your hard-earned returns.
Do not over diversify
You do not need a scheme from every mutual fund category in the market. Choose one or two schemes that are in line with your risk profile to meet your long-term financial goals. Too many schemes and categories in the mutual fund portfolio often end up diluting your returns. It would also result in duplication of investment portfolios. Moreover, many investors would find it difficult to keep track of the performance of many mutual fund schemes.
Hire professional help
Many new investors insist on investing directly in mutual funds. However, we believe one should invest directly only if he or she has a sound knowledge about investing in mutual funds. Also, one should be willing to spend time tracking investments and taking corrective steps. Otherwise, you are better off investing through a mutual fund advisor. Remember, taking care of your investments is more important than saving 1% on commission. If you get in and out of schemes during your learning phase, you would lose an opportunity to create wealth. Invest through an advisor a year or more, lean a bit and gain confidence. Then you can start taking care of your investments on your own.