Mutual funds are an excellent investment options for retail investors – there’s no doubt about that. With several benefits of mutual funds offered to investors, it could be your go-to investment choice to park your savings. Whether you are looking to create wealth in the long run, or wish to preserve your wealth, or are looking to invest in tax-saving mutual funds, or wish to invest in mutual funds with any other investment goals, there are different types of mutual funds that can fit your needs and requirements. Let’s look at certain golden rule for investors who are new to the investing world and diving into the mutual fund markets for the first time.
Understanding mutual funds
Mutual fund investments are professionally managed by mutual fund experts. These mutual fund experts are commonly referred to as fund managers who have exhaustive knowledge and skills to professionally invest and manage your investments. Thus, if you are new investor with not much knowledge about the understandings of the markets, or you are someone who cannot dedicate enough time to your investments, mutual funds are an ideal source of investment.
Further, as most mutual funds are open-ended mutual funds, you can invest and redeem your investments whenever you wish to. There are two distinct ways in which you can allocate your savings to mutual fund investments. Firstly, you can make a lumpsum investment or distribute your investments across small, insignificant investments through SIP (systematic investment plan) investment.
Do’s for first time investors
Clearly define your investment goals. Make sure that these financial goals are SMART – specific, measurable, achievable, realistic, and time-based. Next understand your risk appetite. Anlysing these two parameters you’d be able to come up with the apt financial investment horizon for each goal. Once you have established these three parameters, decide if you wish to invest in mutual funds through lumpsum or SIP investment. Use a mutual fund return calculator to establish the apt investment amount to reach a specific amount needed to achieve your financial goals.
Remember, that compounding plays a huge role in deciding the net returns earned on your investments. As a rule, the earlier you start investing and the longer you stay invested, the more you are likely to reap the benefits of compounding. Divide your financial goals into three categories – short-term financial goals, mid-term financial goals and long-term financial goals, and choose the right set of mutual funds catering to these goals.
Don’ts for first time investors
Do not think that mutual funds will generate significant returns in the blink of an eye. Though, some investors have been lucky enough to generate gigantic returns through mutual fund investments in a short-span, it is not realistic to expect the same each time. Remember, when it comes to investing in the markets, patience and perseverance go a long way. Next do not attempt to time the markets. Timing the markets is an investment strategy when an investor aims to buy low and sell high. Though this might sound simple, but it is difficult to pin point the peak of an investment cycle. Instead, investors recommend time in the markets – i.e. stay invested for a long duration. You must also not get swayed by market emotions and sentiments. It’s better to keep your emotions away when you take investment decisions.
