Mutual Funds – Main Areas to consider Earlier than Investing

Stock Market is a term which evokes a spectral range of emotions in numerous people. Some strongly feel it’s only gambling, many others feel it’s a positive fire way to lose money. A couple of get yourself a high on trading in stocks all day long. Some use it wisely to increase their wealth. The fears related to the stock market came down significantly since the first nineties and now a lot of people feel comfortable buying the stock market. The content is specific for Indian investors though all of 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 your time. This really is where in actuality the Mutual Fund industry can lend you their hand. A Mutual Fund is managed by a Fund Manager and a team of analysts who take their time to study the stock market and invest your money. It saves you from most of the hassles of stock market investing and you also have somebody to look after your money.

The Mutual Fund industry has come a long way since its introduction in India in the first 90s. Mutual Funds provide a number of options based on your risk profile to obtain high tax effective returns. With that said, I’d caution readers that buying 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 related to buying any asset class [Stocks or Gold or commodities or bonds] are applicable to mutual funds also. For the more conservative investor, mutual funds offer exposure to fixed income instruments through fixed maturity plan (FMP)/debt funds wherein your cash is dedicated to debt instruments. FMPs/Debt funds are more tax efficient than direct investment in FDs or bonds/debentures etc. I give below some points that ought to be kept in mind while buying mutual funds.

a. If you’re taking a look at investing money for the short-term (1-3 years) and want the most effective tax efficient return then go for Debt funds/FMPs.

b. If you want exposure to stock markets then remember that stock market returns can be performed only over the long term as markets usually see- saws having an upward bias over the long term. So you could have to stick around 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 more than 30 fund houses (AMCs) offering significantly more than 700 schemes. Select the AMCs that have been around for quite a while (5-10 years will be a good metric). Don’t diversify too much and stick to good fund houses. The important points of fund houses are available in the internet site of Association of Mutual Funds of India. You can even obtain the rating of every mutual fund on this website. Check always to see if the AUM (Assets under management) is high; this ensures that the Mutual Fund has the flexibleness to have a hit just in case a couple of companies that they had dedicated to enter into trouble.

d. Bear in mind that past performance is not a guide for future performance. Choose consistent performers.

e. Choose 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 choose 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 focus on the flavor of the season to tempt you [Commodities, Green Energy, Emerging markets etc].Some may play out; some will die an all natural death. So exercise abundant caution.

f. The very best time to start an SIP is when industry starts showing a downward trend and the worst time to panic and stop an SIP is once the stock market adopts deep decline. In fact this is actually the time when the true investors rub their hands in glee. So you must try and increase your SIP amount when industry is really down and then once industry bounces back you are able to get back to your regular amount. Fix a platform and set a target – e.g., for each and every 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 long term basis mutual funds give an annual return of 12-15%.

h. Execute a review annually and check out from sectors that you feel have peaked out.

i. It is recommended to have 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 on the basis of 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 return 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 company or sector. The stock exchange will promptly replace a company from the index just in case it starts underperforming and your fund does the same. So you are always assured of a return very close to the market return.

j. Don’t confuse an insurance product which invests in the stock market with a mutual fund. They’re two many different products. Insurance products have high charges and give far lower returns than a mutual fund.

Mutual funds are ideal for folks who do not need the time or patience to take the effort necessary for successful stock picking. They give the investor a broad range of exposure to different asset classes and sectors based on risk profile and if chosen wisely can provide extremely satisfying returns to increase wealth.

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