Do's and Don'ts of Mutual Fund Investment
mutual funds are versatile investment options. besides tax benefits, you also get to diversify your investments by putting your money in them. they also allow you to make cost-effective investments.
with the systematic investment plan (sip), you can start your investment with as small as inr 100. sounds simple, right? well, not quite.
there are many things you should and shouldn't do when investing in mutual funds. here are a few things to keep in mind.
when investing in mutual funds, review the fund's performance and the documents before making the investments. don't invest in just any mutual fund advertised on television. be sure to know what you are getting into so that you don't end up incurring huge losses, or worse, fall victim to fraudulent practices.
be sure to review the fund's performance by looking at factors like the present composition and the current fund manager and only investing if you find the terms satisfying.
another thing you should do is tracking the fund's performance when the markets boom or crash. however, it would help if you did not depend only on performance as various other factors come into play when investing in mutual funds.
also, most of the newer mutual funds have nothing new to offer aside from some portfolio variations. so, be sure to check the fund manager and their credibility if you plan to invest in them.
if you are looking to invest via sips, you can as well use vehicles like ppfs. however, make sure that you use a ppf maturity calculator or a ppf return calculator to estimate your returns.
besides ppf, other mutual funds allow you to invest using sip. as suggested earlier, there is no need to spend too much when investing via sip.
another thing you can achieve by investing in mutual funds via sip is rupee cost averaging. so, in that way, sips are great investment tools, especially for mutual funds.
never stop your sips or redeem them unnecessarily. it can do away with the purpose that it serves, which is rupee cost averaging.
it is also not a good idea to invest all at once. doing so can put you at risk, as there is no way to tell when the prices may hit rock bottom. so, keep investing in small chunks over a long period. in that way, you can diversify your investments and reduce the risks.
mutual funds are excellent investment vehicles as they let you diversify your investments. however, be extra careful when investing in them. if you plan to invest in public provident funds, it would be better to use a ppf calculator to know the risks and rewards.
likewise, study the fund you are about to invest in and know its performance and the fund manager.