Introduction:
Share Market is a notion that brings about a gamut of reactions in individuals. Quite a few believe that it is nothing short of gambling; you could win some or lose some or not lose at all if you make wise choices. There have been stories of a few lucky ones striking gold in stocks market. The skepticisms and qualms related to share market have dipped considerably since the early nineties and currently many comfortably invest in mutual funds.
Capitalizing in mutual funds needs intense research, persistent appraisals and ability to make swift decisions. Choosing a stock and keeping yourselves informed about the particular firm and scheduling your transactions might take a lot of time. This is where the Mutual Fund sector is different. A Mutual Fund is handled by a Fund Manager and a group of experts who do this for you and capitalize your hard-earned money. Doesn’t this solve you time crunch for daily stock market research?
The Mutual Fund sector has had an interesting journey since it hit the market in the 90s. They are endowed with a slew of possibilities as per your risk profile to avail huge tax respite. That being said, prospective investors should not jump into this without any homework at all. Falling into the pitfall of wrong and untimely mutual fund will actually sap your wealth dry. The dangers related to any asset investment such as bonds, commodities, gold or shares are pertinent to mutual funds as well. For the more unadventurous depositor, mutual funds provide disclosure to fixed income tools via fixed maturity plan (FMP) or debt funds in which your cash is deposited.
A few pointers to remember when you invest in mutual funds:
- If you are thinking of doing an investment for short term (less than three years) and want the best tax break, choose Debt Funds or FMPs.
- If you want to know more about share markets then know that it takes years to understand the pattern. Obsessively checking the NAV on a daily basis will not do it for you.
- There are over 30 fund houses (AMCs) that give hundreds of schemes. Select the AMCs that are at least five to ten years old.
- It is not a good idea to diversify too much in your initial two years. You can easily get info of fund houses in the online portal of Association of Mutual Funds of India.
- Another key point is not to get excited about a fund’s impeccable past performance. History may not repeat. Consistency is the key to look for.
- Choose New Fund Offer [NFO] only when there is a major decline as this facilitates the mutual fund to get into shares at reasonable prices.
- For Debt funds go for NFOs as interest rates start to pick up.
- Remember, NFOs are usually seasonal and may not be a reliable player. So exercise great restraint.
- The optimal time to commence an SIP is when the market too begins to show a sharp dip and the most horrible time to get anxious and exit an SIP is when the share market goes into an abysmal deterioration.
- Do not presume that you will make a mint. Even on an extended period basis, mutual funds grant a yearly return of 12 to 15 percent.
- Do an assessment annually and stop investing in non-performing sectors.
- As an investor, you are strongly advised to have an SIP in an index fund or ETF. These funds will always give you a return that is almost close to that of the share market.
- Know the difference between an insurance policy invested in shares and a mutual fund. They are completely different as the former levies heavy fees and gives lesser returns from the latter.
Summing it up:
Mutual funds are perfect for those investors who have neither the time nor the perseverance to take the effort required for effective stock selection. They only give you a range of options and exposure to various asset types and arenas. You can choose one that most suit your risk profile. Take all the aforementioned points into consideration while choosing and wealth will amass. Yes, mutual funds are definitely here to stay.
GST rate of 18% applicable for all financial services effective July 1, 2017.
