Mutual fund investments have taken a special place in the hearts of retail investors for the wide variety of benefits it offers to investors. Right from professional management to ease of investing to the diversification of assets across sectors to superior returns than most investment options, the list goes on. If you are looking to invest in mutual funds, this article will serve your needs as it highlights several do’s and don’ts of investing in mutual funds. But before we get to that, let’s quickly recall what is a mutual fund.
What are mutual funds?
Mutual funds are an investment vehicle wherein a fund manager pools money of several investors with the common investment objective and invest it in different securities according to the fund’s objectives. The pooled investment is professionally managed by a fund manager who takes the calls of analyzing, short-listing, tracking, and managing different types of securities.
Do’s of Mutual Fund Investments
Following are some of the do’s associated with mutual funds that are advised to follow before you begin your investment journey with mutual funds:
- Analyse the credit quality of the fund properly. Funds with higher credit quality have a higher potential of delivering significant returns in the future
- Try to maintain a good mix of actively managed mutual funds and passively managed mutual funds. It’s important to diversify your investment portfolio across sectors, funds, location, etc.
- Try to choose mutual funds with a good performance history across various market cycles. Though past performance is not an indication of future returns, but choosing funds with good performance during both bear and bull phase offers higher probability for the fund to deliver decent returns even during a slump market phase
- Make sure that you constantly track the performance of your mutual fund investments at a regular basis.
Don’ts of Mutual Fund Investments
Following are some of the don’ts associated with mutual funds that are advised to follow before you begin your investment journey with mutual funds:
- Avoid funds with too high cost of investment as that will reduce your net take away returns. Check the several costs associated with mutual funds, including expense ratio, shareholder fees, etc.
- Avoid herd mentality. Do not invest in a fund just because your friends or relatives are doing. Your decision to invest in a particular mutual fund scheme should be entirely dependent on your investment portfolio. Make sure that the objectives of the fund aligns with your risk profile, investment tenure, and financial objectives
- Don’t take more risk than you can afford. It is important that an investor does not go beyond their comfort level when it comes to investments in mutual funds. If you are having sleepless nights due to slight volatility in your mutual fund investments, chances are you are investing beyond your risk appetite. It’s advised to move your investments in less risky investment options in such scenarios.
Hope this article serves as your to-go investment guide for do’s and don’ts associated with investments in mutual funds. Remember to make use of the investment tool – mutual fund return calculator to analyze the future returns on your investments. Happy investing!
I am Tristan who loves to ride and spend time with my jenny (horse) and my love Mark. After completing my graduation, I have been working as an accountant in a private firm in Cologne.