First-time investors in the mutual funds market can find themselves overwhelmed by how vast the investment horizon can be. There are myriads of things to factor in – expense ratio, assets under management, and whatnot. However, the secret to success lies in taking care of the basics. Here are the top tips to help you compare and choose the right investment option for yourself.
#1 Your investment goals act as the compass
Without setting concrete investment goals, you are likely to forget or exit the investment process. The first thing to do is to set clear goals regarding the date, time frame, and return expectations. Goals can either be short-term, involving the down payment of a property or long-term, such as retirement planning.
Deciding why you want to invest in the first place will help you choose the right fund type.
#2 Consider your risk appetite
Another essential factor to consider while making mutual fund investments is to ensure that the risk associated with the investment is compatible with your personal risk profile. Risk comes only from not knowing what you’re getting yourself into. In the fund market, equity funds are highly volatile, whereas debt funds are low-risk; investing according to one’s risk profile guarantees steady returns.
#3 How liquid do you want the investment to be?
The liquidity of an investment is another critical factor to consider. If you feel that you will need the invested corpus in the near future, it is better to invest in liquid funds. However, if you are alright with investing the money for a reasonably long period of time without being affected by market ups and downs, then equity mutual funds are the way to go.
#4 Don’t neglect the investment strategy
Most investors pay little to no attention to their fund house’s investment strategy. Also known as the investment approach, the investment strategy refers to the approach your fund house adopts towards investments in the scheme. Since a crucial factor in your portfolio’s success, choose your investment strategy wisely – value investing, income investing, growth investing, etc.
#5 Keep an eye on fund performance
Fund performance matters more than you think. However, you must keep an eye on long-term fund performance, not merely from a short-term perspective of six to 12 months. For instance, if the mutual funds you’re looking to invest in has not been meeting its benchmark over a span of three, five, or seven years, then it is unlikely to be a good investment option.
In addition to the fund’s performance, also look out for your fund management team’s performance. Their proven track record and experience is crucial to the success of your portfolio.
Want to start your investment journey? Then, why wait! With the use of smartphone apps like Tata Capital’s Moneyfy app, you can compare between different funds from the comfort of your home. Sit back and choose the right fund based on your risk appetite, investment approach, and more.