Things to keep in mind before you Buy Mutual Funds

Posted by  Fintra , updated 2020-12-29

Things to keep in mind before you Buy Mutual Funds

1) Define Investment Purpose: Take some time out and plan your investment and create goals for investments. Mutual Fund Investment is a Journey that requires proper planning. If you start this journey without proper planning, you may not get the desired results/end at the right destination.

2) Discipline is the Key: Knowing why you are investing is ensuring a good start to your investment journey but it is important to be disciplined and stick to it. Don’t deviate from your goal and stay away from the herd mentality. Your investment journey is like a marathon First only first 500 meters don’t determine how you finish unless you stick to the plan.

3) Asset Allocation:  Keep in mind that your risk profile keeps changing over a period of time. Make sure your portfolio is aligned with the changing risk requirement. A proper financial planner helps you in achieving that.

4) Do not Mix Insurance and Investment: A large number of people have purchased Insurance schemes that guarantee returns. Returns in such schemes is a mere 6%-7% and with a lock-in period and a heavy penalty in case of early withdrawal.

Usually, such schemes are either sold by relatives/friends as they get hefty commissions (15%-50%) from investors and unfortunately, investors are not aware of this. Do not mix insurance and investment as they both serve different purposes. Instead buy a mutual fund and term insurance separately.

5) Think Long Term: Common people usually fall for short term tends thinking they have missed the bus. For example, recently, many people took money away from their savings and invested in Bitcoins and lost a lot of money as they were not aware of the risks involved. Do not focus on short-term gains and have a disciplined long-term approach.

6)  Research: Just looking at historical returns is not the only criteria. Sophisticated investors can look for other factors such as Risk, Sharpe Ratio, Mutual Funds holdings, etc and others can get in touch with their financial planner/investment advisor.