Rules of Mutual Fund Investments


Individuals invest their hard-earned money in order to earn good returns. By doing so, you may build your wealth and ensure a sound financial future. There are numerous investment instruments available in the market, such as stocks, gold bonds, Certificates of Deposit, real estate, and annuities, among various others.

Out of the numerous investment vehicles, mutual funds are a very popular option for both beginners and experienced investors alike. They are diversified investments, which means that you are able to spread market risk by investing in varied securities rather than just a few. Besides, the cost of investment is lower as compared to other instruments. Moreover, you may choose from various options based on your risk profile such as sector funds, bond funds, debt funds, and balanced funds, among others.

It is important to understand the technical know-how while making mutual fund investments. Following are five rules you may keep in mind while investing.

1. Choose the right fund
With a variety of options available, choosing the right fund often becomes a cumbersome task. To make this process simpler, you may stick to funds that are well-suited to your financial goals and risk profile. If you are a high-risk individual, you may consider instruments such as equities. You may opt for balanced funds, which is a combination of equity and debt. For individuals who like to play it safe, low-risk instruments such as life insurance policies, Fixed Deposits, or Public Provident Fund(PPF), are suitable options.

2. Understand your goals
Quite often investors begin investing in mutual funds without determining their goals. Understanding your financial goals will help you set realistic expectations. You may then work your way and plan your strategies accordingly, so as to achieve your goals easily.

3. Review stocks of various sectors
Many have an inclination to invest in stocks of a particular sector. However, it is imperative to understand the volatility of the stock performance. You may review the history of the sector so as to gain a good perspective. To even out risk, you may consider investments in various sectors. This helps in obtaining good returns even if a particular sector fails to perform.

4. Be a disciplined investor
You may either invest a lump sum amount or through a Systematic Investment Plan (SIP). Mutual fund SIP facilitates disciplined savings periodically and helps to accumulate a corpus over a period of time. You may enjoy the benefits of rupee-cost averaging and power of compounding, by reaping greater returns in the long term.

5. Wait patiently
Novice investors tend to withdraw a particular mutual fund the moment the market begins to fall. By doing so, you may incur significant losses. A wiser option would be to wait for the market to show a positive trend.

Mutual funds are an excellent instrument to yield good returns. You may keep the aforementioned tips in mind and make sound investment decisions.