- Importance of Risk profile: This is the most important process to determine the individual’s risk profile and choose funds based on that. Investing without knowing your risk profile is not the right way as your emotions take precedence over investment objectives.
- Don’t Chase returns: While investing in mutual funds, when investors start to chase returns is the time when a downfall in their wealth creation will happen. Hence, do not chase returns, and identify funds based on their investment strategy and their track record rather than past 1-year performance.
- Consider funds based on Rolling Returns: Investors tend to consider Point to Point returns which do not give the full picture of the fund’s performance as rolling returns are the ideal way to understand the consistent performance of the fund along with the downside protection and upside capture during market movements.
- NAV of the fund doesn’t matter: NAV should never be a consideration to buying a mutual fund as the higher the tenure of the fund, NAV will be higher. A fund with Rs.10 NAV and a fund with Rs.1000 NAV if they deliver 10% returns, then the NAV will become Rs.11 and Rs.1100 respectively. Hence, if the fund is there for a long time and if the NAV is lower, then it is the point of concern, not the other way around.
- Importance of asset allocation: There are multiple asset categories in mutual funds including equity, debt, hybrid, commodities, international equities, cash and others. Hence, choose a fund based on the short term, medium-term and long term goal and based on risk profile, cash flow requirement, tax-efficient withdrawals etc. As there are multiple funds in different categories, it is better left to professional management to take care of your investment needs. All this can be done by your qualified financial consultant who will monitor regularly, track your portfolio, advise you on the market conditions, make changes wherever necessary and help you to reach your financial goal.
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