Mutual funds poses to be a significant form of invest for individuals who are keen to increase their savings over a certain period of time. The main reason why direct mutual fund investment has become popular is because of its flexibility. With a mere Rs 500 you can invest in mutual funds and this can be done on a short term and long term basis. Even though investment in mutual funds can pose considerable risks because of perceived risks.
An investor is of the opinion that all mutual funds are the same, but it does not work in that way. They can be classified as hybrid, debt and equity which could be further divided into sub types. Because of the volume of mutual funds you will be overwhelmed with the choices at your peril. Let us get to the details on how to make a foray in mutual fund investments.
Outline the magnitude of risks involved
On your investment opportunities outline the risks involved. Any mutual fund carries a level of risk due to investment methodology and risk of underlying securities. The mid cap funds have the highest levels of risk but offers a high potential. On the other hand debt funds have low income potential even though the risk is on the lower side. Each fund has a unique angle attached to it and in the choice of mutual funds clearly understands your risk tolerance and risk tolerance abilities.
NAV has no bearing
The NAV of a mutual fund has no bearing on how a fund is expected to perform at present or in the future. For this reason mutual fund returns are interpreted with percentage figures. You could go on to purchase a fund with a high NAV or low NAV how your investment grows is dependent upon how the fund performs.
Over time diversify your investments
Mutual funds do provide you with an opportunity to diversify your investment over a period of time due to the immense diversification opportunities it provides. In case if you are of the opinion that the market is bullish and you want to make fast money investing in a mid-sized fund is the key as this can give you an opportunity to earn money within a short time frame. It is better to diversify your investment portfolio with a mix of debt and equity based funds that can go on to balance your overall risk and return on your portfolio.
Opt for a strategy long term based in nature
Take note of the fact that mutual funds are not quick rich schemes, and to obtain maximum rewards a long term investment strategy has to be in place. Equity oriented mutual funds are beneficial for someone who has an investment horizon of 5 years or more. An ideal strategy would be to opt for a balance of equity and debt based funds so as to balance your liquid portfolio.
Last but perhaps the most important point of consideration is periodic monitoring of your mutual funds.