Smart ways to invest in mutual funds
There is no doubt in the fact that mutual funds can be highly beneficial. If invested after proper research and homework, it has the potential to both accelerate your corpus’s growth and keep it safe at the same time. But you could try and amplify the benefits by planning smart. Below are the few things you could try to invest in mutual funds smartly.
Find your investment goals and invest according to it
The most integral part of the homework you should do before investing in a mutual fund includes finding the goal. Any investment work the best when you have a clearer idea of what you are investing for. This can help you formulate a plan accordingly as well.
For instance, if your investment goal is to create a retirement fund, you would have a much better idea about the time frame you have and the amount of money you would need to grow. This helps you choose an investment option accordingly.
On the other hand, if your goal is short-term based, like buying a new smartphone or a laptop, you could invest accordingly to make the corpus within the timeframe you want.
Choosing the right fund
If you have a clear idea about all mutual fund categories and invest accordingly, you will have a much better idea of what investment option to select. For instance, suppose you want to invest in equities through mutual funds, and you invest in a large-cap fund. But later, you came to know about ELSS, where you can save some tax as well, given that you will only be able to redeem after three years. You might feel like you have missed out on something here, and if you had done your due research and knew all the categories of mutual funds, you could have avoided the mistake.
Determine your risk appetite
Another smart thing you can do is to gauge how much risk you can afford to take and invest accordingly. There is both an emotional and budget aspect to this. The emotional aspect is how much you can afford to lose without feeling bad or guilty, while the budget aspect is about how much your pocket can really afford to lose. Knowing this can greatly help you reduce the chances of a loss if your appetite is low.
You could take the help of an investment advisor to gauge your risk appetite. They will take in all the information from you and work with you to figure out a range of risks that you can afford. Then, you can invest in a fund that has a similar risk appetite.
Diversify your investments
One way to make sure your investments are kept away from risk as much as possible is to diversify your portfolio. This way, if one or two security types are having a bearish run, your whole portfolio will only have a diluted effect.
Similarly, diversification could also help you maximise the growth opportunity. Different security types like equity and debt funds could have different periods in which they grow. If your portfolio has different types of securities, you would be maximising your growth opportunity.
Understand the taxation
As we have discussed in the example above, you could maximise the benefits of investing by choosing tax-saver options. This way, your corpus gets the growth it needs while saving you some taxes.
Many people invest in mutual funds, and what stands you apart is often the smarter moves. Follow the pointers above to make sure you have the upper hand while investing in mutual funds.