These 7 mutual fund investment tips are unique and specially curated by RankMF experts.
Mutual Fund Investment Tip #1. Choose Equity Funds over Debt FundsEquity mutual funds have always generated superior returns than debt funds. But investors avoid equity funds due to their riskiness.Investors should know that there is a wide variety of equity funds which carry low risk. For example, large cap mutual funds invest in top companies with the highest market capitalisation. Hence these funds are relatively less risky than a small cap equity mutual funds.So, low-risk investors can consider investing in large cap mutual funds for long-term financial goals.Similarly, there are various types of mutual funds in the market for investors with low-medium risk profiles.Hence, instead of avoiding equities entirely, investors can simply search for a fund that suits their risk profile and investment objective.Low-risk investors can also choose to invest 50%-50% in equity and debt funds to generate higher returns while reducing risk.
Mutual Fund Investment Tip #2. Diversify your investmentsWhen investing in mutual funds, it is advisable to diversify your investment across asset class like equity, debt, gold and hybrid.This helps create a hedge against volatility. You also earn superior returns by investing in different assets. For example, if you wish to invest Rs 5,000 in mutual funds for 5 years and have a conservative risk profile then you can distribute your portfolio into something like this:
Type of mutual fund
|Debt mutual fund||Rs 2000|
|Large-cap equity mutual fund||Rs 1,500|
|Multi-cap equity mutual fund||Rs 1,000|
|Gold mutual fund||Rs 500|
Mutual Fund Investment Tip #3. Invest based on risk profile and financial goalsThis mutual fund tip will help you achieve your financial goals while earning superior returns.When investing in mutual funds, our entire focus is on generating higher returns. But this is not a correct investment approach.Mutual fund investment should be made only after you do goal based financial planning. By investing as per a financial plan, you end up committing for the long-term.When you invest for the long-term, you generate superior returns through the power of compounding.Here is a sample list of goal-based investments for achieving your financial goals.
|Remarks||Suitable Asset Class|
|Emergency funds||Emergency Funds = Your monthly expenses (including household expenses, travel, EMIs etc. X 6 months)||Fixed Deposit, Liquid Funds|
|Buying house||You can accumulate an amount for a down payment which is 20%-30% of the property value.||SIP in Mutual Fund + SIP in Blue chip stocks|
|Child’s education||Nowadays, children’s higher education is getting expensive. So, from the year your child is born you can start saving + investing through SIPs in various asset classes.||SIP in Mutual Fund + SIP in Blue chip stocks|
|Retirement corpus||If you are willing to retire early, you have to plan your retirement journey well in advance. Saving a small amount of money in a systematic manner through SIPs today will reap good returns in the future.||SIP in Blue chip stocks|
Mutual Fund Investment Tip #4. Lump-sum Investment vs Systematic investment plansThere are two styles of investing in mutual funds:
- Lump Sum investing
- Systematic Investment Plans (SIPs)
Mutual Fund Investment Tip #5. Use the Power of CompoundingAlbert Einstein has said that the power of compounding is the eighth wonder of the world.Compounding is the additional gains you receive when the returns are reinvested. Here, you earn interest on the principal amount as well as interest amount. Let’s understand this with the table below
|Monthly Investment||Rs 5,000|
|Investment Period||240 months (20 years * 12 months)|
|Future Value||Rs 38,28,485|
|Total Principal Invested||Rs 12,00,000 (5000*12*20)|
|Total Profit Earned||Rs 26,28,485|
Mutual Fund Investment Tip #6. Invest through SmartSIPRankMF’s SmartSIP is a smarter way to generate superior returns. It follows the principle of ‘buying low and selling high’.
- If the markets are expensive – SmartSIP will invest in liquid funds and wait for the right time.
- If the markets fairly priced – SmartSIP will invest regularly in mutual funds.
- If the markets are cheap - SmartSIP will double your SIP amount.
- More than 4% p.a than a regular SIP.
- Higher realizable corpus with lower risk