THINKING OF INVESTING IN MUTUAL FUNDS? TAKE THESE 7 STEPS
Equity markets have done well in last few quarters and hence there is a renewed
interest from retail investors. Market behavior cannot be controlled but one’s
investing behavior can certainly be managed to give optimum results. One should
follow a methodology and focus on elements like available liquidity, goals, asset
allocation and risk appetite, expertise, logistics and portfolio review.
What’s your investible surplus?
Revisit your cash flow and take a stock of the money that is available every month.
Consider parking funds for annual expenses in liquid mutual funds. Keep a buffer
for contingencies and if you are not sure, start with say 90% of the targeted surplus.
You can take average surplus numbers and use the funds parked in liquid mutual
funds to meet deficit, in the months with high expenses. Remember that money
kept ideal in a saving bank account will earn you lesser than inflation.
Do you have a goal?
Think through with your family and get your money to the best use. Check for short
term cash out flows for children’s education, down payment of home, annual
vacation and the likes. Ensure that these are planned well and saved in Debt
securities. The long term goals like Children’s education or retirement gap savings
can be in instruments like Equity Mutual Funds (MFs) that can possibly generate
substantial wealth in the long term. Experts believe that Goal based savings are
one of the best forms of investing.
What’s your desired asset allocation & what about the risk appetite?
The way we need to map savings to goals, similarly we also need to map the
incremental investments to our desired asset allocation. What Oxygen is to human
life, the same way Asset Allocation is to investments. Remember what the grand-
father said decades ago, ‘don’t keep all your eggs in one basket’. One secret to
build wealth is to consistently beat inflation and save taxes. That said, Equity Funds
are not everyone’s cup of tea. So check your asset allocation and opt for suitable
mutual funds in line with your risk appetite.
Do you have the expertise or would you need help?
With over 45 Mutual Fund (Asset Management) companies and 10,000+ schemes
in India, it’s easy to get confused. There are various ways one can construct a
portfolio to invest in mutual funds. Goals, risk appetite, duration, market situation,
investible surplus are key considerations in building a portfolio. So decide if you
need an experts help in managing your mutual funds. Based on the need and size
of investments, various options from Do It Yourself (DIT) to online web based
solutions to personalized services can be availed.
So how are you going to execute
Mutual Fund investments are a product that you are likely to need for rest of your
life. It’s a very long term need so carefully setup your investments. You can use
your Online Demat, trading, bank accounts, use a web based or an offline
distributor service and invest in regular plans or even approach the mutual fund
(asset management) company and invest in direct plans. All options have their
pros and cons so take some time and make an informed decision. Experts strongly
recommend SIP approach for consistency, cost averaging and investment
longevity.
Mere investing is no good. Take a stock once in a while
There are examples of investors having made decent profits in mutual funds and
there are equal examples of investors having burnt their fingers. Buy and Hold does
not work. The way you regularly review your projects at work, please also take a
stock of how your mutual funds are doing, at least once in say six months. Churning
is not a good idea and neither is good to sell your fund just because it did poor in
last quarter. Objective of the review is to take a stock and keep a tab on key
indicators of your funds. Market situations, goal maturity, portfolio profits, fund
specific factors may need you to undertake re-balancing of the funds.
Take SIP route while investing in MF?
Even an amount of Rs. 500 a month is sufficient to start a Systematic Investment
Plan (SIP) in a Mutual Fund. This is an easy, affordable and long term measure to
build wealth. So invest for goals, keep in mind your risk appetite, target returns
above inflation, choose tax saving vehicles, review regularly but stay patiently
invested.
Equity markets have done well in last few quarters and hence there is a renewed
interest from retail investors. Market behavior cannot be controlled but one’s
investing behavior can certainly be managed to give optimum results. One should
follow a methodology and focus on elements like available liquidity, goals, asset
allocation and risk appetite, expertise, logistics and portfolio review.
What’s your investible surplus?
Revisit your cash flow and take a stock of the money that is available every month.
Consider parking funds for annual expenses in liquid mutual funds. Keep a buffer
for contingencies and if you are not sure, start with say 90% of the targeted surplus.
You can take average surplus numbers and use the funds parked in liquid mutual
funds to meet deficit, in the months with high expenses. Remember that money
kept ideal in a saving bank account will earn you lesser than inflation.
Do you have a goal?
Think through with your family and get your money to the best use. Check for short
term cash out flows for children’s education, down payment of home, annual
vacation and the likes. Ensure that these are planned well and saved in Debt
securities. The long term goals like Children’s education or retirement gap savings
can be in instruments like Equity Mutual Funds (MFs) that can possibly generate
substantial wealth in the long term. Experts believe that Goal based savings are
one of the best forms of investing.
What’s your desired asset allocation & what about the risk appetite?
The way we need to map savings to goals, similarly we also need to map the
incremental investments to our desired asset allocation. What Oxygen is to human
life, the same way Asset Allocation is to investments. Remember what the grand-
father said decades ago, ‘don’t keep all your eggs in one basket’. One secret to
build wealth is to consistently beat inflation and save taxes. That said, Equity Funds
are not everyone’s cup of tea. So check your asset allocation and opt for suitable
mutual funds in line with your risk appetite.
Do you have the expertise or would you need help?
With over 45 Mutual Fund (Asset Management) companies and 10,000+ schemes
in India, it’s easy to get confused. There are various ways one can construct a
portfolio to invest in mutual funds. Goals, risk appetite, duration, market situation,
investible surplus are key considerations in building a portfolio. So decide if you
need an experts help in managing your mutual funds. Based on the need and size
of investments, various options from Do It Yourself (DIT) to online web based
solutions to personalized services can be availed.
So how are you going to execute
Mutual Fund investments are a product that you are likely to need for rest of your
life. It’s a very long term need so carefully setup your investments. You can use
your Online Demat, trading, bank accounts, use a web based or an offline
distributor service and invest in regular plans or even approach the mutual fund
(asset management) company and invest in direct plans. All options have their
pros and cons so take some time and make an informed decision. Experts strongly
recommend SIP approach for consistency, cost averaging and investment
longevity.
Mere investing is no good. Take a stock once in a while
There are examples of investors having made decent profits in mutual funds and
there are equal examples of investors having burnt their fingers. Buy and Hold does
not work. The way you regularly review your projects at work, please also take a
stock of how your mutual funds are doing, at least once in say six months. Churning
is not a good idea and neither is good to sell your fund just because it did poor in
last quarter. Objective of the review is to take a stock and keep a tab on key
indicators of your funds. Market situations, goal maturity, portfolio profits, fund
specific factors may need you to undertake re-balancing of the funds.
Take SIP route while investing in MF?
Even an amount of Rs. 500 a month is sufficient to start a Systematic Investment
Plan (SIP) in a Mutual Fund. This is an easy, affordable and long term measure to
build wealth. So invest for goals, keep in mind your risk appetite, target returns
above inflation, choose tax saving vehicles, review regularly but stay patiently
invested.
Happy Investing
Source:Gettingyourich.com
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