Mutual Funds : Major Facts to consider In advance of Investing
February 9, 2021 Business
Stock Market is just a term which evokes a spectrum of emotions in numerous people. Some strongly feel it’s just gambling, some others feel it’s a positive fire way to reduce money. A couple of get yourself a on top of trading in stocks all day long. Some put it to use wisely to improve their wealth. The fears connected with the stock market attended down significantly since early nineties and now a majority of people feel comfortable investing in the stock market. The article is specific for Indian investors though the majority of the ideas expressed are universal.
Purchasing the stock market requires careful study, constant review and quick decisions. Cherry picking an inventory and keeping yourselves กองทุนบัวหลวง updated about the company and timing your buying and selling can occupy an important part of your time. That is where the Mutual Fund industry can lend you their hand. A Mutual Fund is managed with a Fund Manager and a team of analysts who take their time for you to study the stock market and invest your money. It saves you from all the hassles of stock market investing and you also have somebody to take care of 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 have high tax effective returns. That being said, I would caution readers that investing in mutual funds also needs a little effort from your own side. Getting into the incorrect mutual fund at the incorrect time can destroy your wealth. The risks connected with investing in 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 money is invested in debt instruments. FMPs/Debt funds are more tax efficient than direct investment in FDs or bonds/debentures etc. I give below some points that should be considered while investing in mutual funds.
a. If you should be taking a look at investing money for the temporary (1-3 years) and want the most effective tax efficient return then select Debt funds/FMPs.
b. If you’d like experience of stock markets then remember that stock market returns can be achieved only over the long run as markets usually see- saws having an upward bias over the long term. So you could have to hang in there for over 5 years. Don’t check your NAV(Net Asset Value) everyday and feel excited or melancholic as a result of erratic movement.
c. There are many than 30 fund houses (AMCs) offering a lot more than 700 schemes. Select the AMCs that have been around for quite a long time (5-10 years would be a good metric). Don’t diversify too much and stick to good fund houses. The details of fund houses are available in the web site of Association of Mutual Funds of India. You may also obtain the rating of every mutual fund on this website. Check to see if the AUM (Assets under management) is high; this ensures that the Mutual Fund has the flexibleness to have a hit in the event 1 or 2 companies that they’d invested in enter into trouble.
d. Bear in mind that past performance isn’t helpful information for future performance. Select consistent performers.
e. Select New Fund Offer [NFO] only during a significant downturn as this enables the fund to find yourself in stocks at lower prices. For Debt funds go for NFOs when interest rates start peaking. Don’t enter into an NFO because you are swayed by the smart ad in the media. Usually NFOs concentrate on the flavor of the summer season to tempt you [Commodities, Green Energy, Emerging markets etc].Some may play out; some will die a natural death. So exercise abundant caution.
f. The very best time for you to start an SIP is when industry starts showing a downward trend and the worst time for you to panic and stop an SIP is when the stock market adopts deep decline. In fact this is actually the time when the actual investors rub their hands in glee. So you must try and raise your SIP amount when industry is truly down and then once industry bounces back you can get 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 industry bounces back.
g. Don’t expect extraordinary returns. On a longterm basis mutual funds give an annual return of 12-15%.
h. Perform a review once a year and check from sectors that you feel have peaked out.
i. It is preferred with an SIP in an index fund/exchange traded fund (ETF). An index fund invests in companies that form the particular index. As an example if the index fund is based on the Bombay Stock Exchange (BSE) Sensex, then it invests its funds in the companies which 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 can be a very safe way and protects you from individual gyrations in stock price of a business or sector. The stock exchange will promptly replace a business from the index in the event it starts underperforming and your fund does the same. So you are always assured of a reunite very near to the market return.
j. Don’t confuse an insurance product which invests in the stock market with a mutual fund. They are two completely different products. Insurance products have high charges and give far lower returns when compared to a mutual fund.
Mutual funds are ideal for those who do not need enough time or patience to take your time and effort required for successful stock picking. They provide the investor an extensive range of experience of different asset classes and sectors according to risk profile and if chosen wisely can provide extremely satisfying returns to improve wealth.