Beginners are often apprehensive and confused about investing in mutual funds and rightly so. With multiple fund options being available in the country today, choosing the most suitable option can be a tough ask indeed. With regard to share markets and their volatility, these are avenues for more seasoned investors with even higher risk appetites and long-term strategies. For those looking for a nominal amount of risk and a comparatively safer investment option, mutual funds can be an option worth considering.
One must first decide on his/her investment portfolio. The quantum of money that will be invested across multiple categories of mutual funds is one decision that has to be made at the earliest. Suitable allocation of assets is also significant in this regard. The number of financial dependents, age, occupation and some other factors should also influence your decisions. As per a basic principle, the investment percentage in debt funds should be equal to your age. One should invest 40% at the age of 40 for example.
When it comes to selecting the right fund to invest in, there are several things that you must also keep in mind. These include your own financial goals and whether you wish to invest for securing your own retirement, add to your present income or invest in the higher education of your child. You should also be clear about whether you desire money within a short time frame or whether you can stay invested for the long haul. Assess your own risk appetite and how much risk you can bear in order to deal with the fluctuations in the stock markets. You should also remember that various mutual funds have varying levels of risks. There are higher risks linked to mid-cap and small equity funds but these have higher returns in comparison to debt funds which offer lower returns although they have lower risks as well. There are hybrid funds that offer the perfect balance between risks and returns.
SIPs can be good investment options in most cases. Beginners can start with funds which are more balanced as far as debt and equity are concerned and those which are diversified. Then they can switch to funds which ensure higher returns and equity funds which have higher risk components. SIPs may be a good decision since they safeguard investors from the impact of future crashes in the stock markets. For cash withdrawal, a systematic withdrawal plan or SWP can also be availed of in this regard.
You should remember that careful monitoring of the portfolio is highly essential. You should always keep a tab on the investments that you make. You can access various resources for gathering more information on mutual fund investments.