Mutual Funds – Primary Facts to consider Prior to when Investing

Stock Market is a term which evokes a spectrum of emotions in various people. Some strongly feel it’s nothing but gambling, others feel it’s a positive fire way to get rid of money. A few obtain a high on trading in stocks all day long long. Some utilize it wisely to boost their wealth. The fears associated with the stock market came down significantly since the first nineties and now a majority of people feel comfortable purchasing the stock market. The content is specific for Indian investors though all the ideas expressed are universal.

Buying the stock market requires careful study, constant review and quick decisions. Cherry picking a stock and keeping yourselves กองทุนบัวหลวง updated about the business and timing your buying and selling can take up a major part of one’s time. That is where the Mutual Fund industry can lend you their hand. A Mutual Fund is managed by a Fund Manager and a group of analysts who take their time for you to study the stock market and invest your money. It saves you from most of the hassles of stock market investing and you might also need somebody to look after your money.

The Mutual Fund industry has come quite a distance since its introduction in India in the first 90s. Mutual Funds provide a number of options in accordance with your risk profile to have high tax effective returns. That being said, I would caution readers that purchasing mutual funds also needs a little bit of effort from your own side. Stepping into the incorrect mutual fund at the incorrect 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 invested in 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 should be kept in mind while purchasing mutual funds.

a. If you’re considering investing money for the short term (1-3 years) and want the best tax efficient return then select Debt funds/FMPs.

b. If you would like experience of stock markets then remember that stock market returns can be achieved only over the long run as markets usually see- saws with an upward bias within the long term. So you may have to stick around for more than 5 years. Do not 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 more than 700 schemes. Pick the AMCs which have been around for quite a long time (5-10 years will be a good metric). Do not diversify an excessive amount of and adhere to good fund houses. The important points of fund houses are available in the website of Association of Mutual Funds of India. You can even obtain the rating of every mutual fund with this website. Check always to see if the AUM (Assets under management) is high; this ensures that the Mutual Fund has the flexibleness to take a hit in case 1 or 2 firms that they had invested in enter into trouble.

d. Remember that past performance is not helpful tips for future performance. Select consistent performers.

e. Select New Fund Offer [NFO] only during an important downturn as this enables the fund to find yourself in stocks at lower prices. For Debt funds opt for NFOs when interest rates start peaking. Do not enter into an NFO because you’re 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 a natural death. So exercise abundant caution.

f. The very best time for you to start an SIP is when the marketplace starts showing a downward trend and the worst time for you to panic and stop an SIP is once the stock market switches into deep decline. Actually this is actually the time when the real investors rub their hands in glee. So you need to try and boost your SIP amount when the marketplace is really down and then once the marketplace bounces back you can go back to your regular amount. Fix a base 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 marketplace bounces back.

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

h. Perform a review one per year and check from sectors that you are feeling have peaked out.

i. It is recommended to have an SIP in an index fund/exchange traded fund (ETF). An index fund invests in firms that form the particular index. For instance 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 always have a get back 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 a business or sector. The stock exchange will promptly replace a business from the index in case it starts underperforming and your fund does the same. So you’re always assured of a get back very near the market return.

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

Mutual funds are ideal for those who do not have the time or patience to take your time and effort necessary for successful stock picking. They feature the investor a broad selection of experience of different asset classes and sectors in accordance with risk profile and if chosen wisely can offer extremely satisfying returns to boost wealth.

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