Nearly 69 lakh new investors have entered mutual funds in the past year. However, planners say most beginners are simply chasing recent winners or relying on tips from friends, without assessing whether those schemes suit their needs. Advisors stress that investing should start with clarity on goals, timeframe and risk tolerance, and the fund choice should follow from there.
What should an investor do before buying a mutual fund scheme?
Financial planners say the starting point is clarity on goals and time horizon — whether the money is meant for an emergency buffer, a home down payment, a foreign holiday, retirement, or a child’s education. The choice of fund should flow from how soon the money is needed and how much volatility the investor can handle.
How important is it to understand your risk tolerance?
Risk tolerance is simply the level of loss an investor can handle in pursuit of higher returns. A conservative investor who worries about market swings should keep equity exposure low — around 10–20% of the portfolio. But if you are comfortable with volatility and can stomach a 20–30% drop without panic, you can take a higher equity allocation as an aggressive investor.
What type of funds should investors pick for different time horizons?
For goals less than three years away, advisors recommend highliquidity, low-risk options such as liquid funds, short-term debt funds, arbitrage funds, and equity-savings funds.
For goals three to seven years away, investors can mix growth and stability through aggressive hybrid funds, passive large-cap funds, and dynamic asset allocation funds.
For goals beyond seven years, planners say investors can take higher equity exposure through diversified equity funds, including selective midcap, small-cap or thematic funds depending on risk appetite.
How do you build your portfolio?
Once you understand your risk tolerance and goals, you can choose a mix of different asset classes and schemes in the portfolio. Financial planners believe investors can have a mix of equity, debt, and gold, with the proportion varying based on risk profile.
Within equity, they can spread investments across growth and value styles, and add thematic, and small-cap funds if their risk profile permits.
When choosing an individual scheme, investors should consider the fund house’s track record, consistency of performance, expense ratio, and the investment objective of the fund.
Opt for a systematic investment plan (SIP) if you have monthly cash flows. Finally, investors should review their portfolio performance against its benchmark and check alignment with their goals at least once a year.
What should an investor do before buying a mutual fund scheme?
Financial planners say the starting point is clarity on goals and time horizon — whether the money is meant for an emergency buffer, a home down payment, a foreign holiday, retirement, or a child’s education. The choice of fund should flow from how soon the money is needed and how much volatility the investor can handle.
How important is it to understand your risk tolerance?
Risk tolerance is simply the level of loss an investor can handle in pursuit of higher returns. A conservative investor who worries about market swings should keep equity exposure low — around 10–20% of the portfolio. But if you are comfortable with volatility and can stomach a 20–30% drop without panic, you can take a higher equity allocation as an aggressive investor.
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What type of funds should investors pick for different time horizons?
For goals less than three years away, advisors recommend highliquidity, low-risk options such as liquid funds, short-term debt funds, arbitrage funds, and equity-savings funds.
For goals three to seven years away, investors can mix growth and stability through aggressive hybrid funds, passive large-cap funds, and dynamic asset allocation funds.
For goals beyond seven years, planners say investors can take higher equity exposure through diversified equity funds, including selective midcap, small-cap or thematic funds depending on risk appetite.
How do you build your portfolio?
Once you understand your risk tolerance and goals, you can choose a mix of different asset classes and schemes in the portfolio. Financial planners believe investors can have a mix of equity, debt, and gold, with the proportion varying based on risk profile.
Within equity, they can spread investments across growth and value styles, and add thematic, and small-cap funds if their risk profile permits.
When choosing an individual scheme, investors should consider the fund house’s track record, consistency of performance, expense ratio, and the investment objective of the fund.
Opt for a systematic investment plan (SIP) if you have monthly cash flows. Finally, investors should review their portfolio performance against its benchmark and check alignment with their goals at least once a year.
