How to become a better investor using Mutual Funds

The first and most important thing about becoming a better investor is to know and learn about investing thoroughly. Read and understand about investing, why are you interested in investing, know your goals, your risk appetite, etc.

How to become a better investor using Mutual Funds

For instance, Just the way when you purchase any new mobile or any electronic device you learn and understand it thoroughly and compare it with another device. Likewise, selecting any mutual fund or any fund without any knowledge, of what someone tells you won’t work. One needs to gain lots of knowledge about investing to become a better investor.

Here are some important points to keep in mind to become a better investor using MFs –

Identify your purpose for investing

This is the very first step towards investing in a mutual fund. You need to be clear with your investment goals. If you don’t have any specific goal, you should at least have clarity on how much wealth you want to accumulate. Identifying your investment goal helps in investing based on the level of risk, lock-in period, returns, etc.

Know your customer requirements (KYC)

To invest in a mutual fund, investors need to comply with the KYC guidelines. For this, the investor needs to submit copies of their PAN card, proof of residence, etc as specified by the fund houses.

Know about schemes available

Make sure that you have understood the different types of schemes available. Align your risk appetite and investment goals with the selected schemes. Seek the help of an investment advisor if you aren’t sure.

Therefore, these are some key factors that might help in becoming a better investor using mutual funds.

Invest in Mutual Funds in your 30s

First of all, it’s never too early or too late for getting started with investing in the market. Your age, family need, personal needs, investible income, and personal risk factors should all be considered when determining what dollar amount you feel comfortable investing.

Invest in Mutual Funds in your 30s

Several alternatives could be classified as best investment options, it is critical to chart out and identify what are the best investments to make in your 30s that will facilitate your future goals in life.

Here are some important points you should consider before investing-

Understand the basics

Before investing in any mutual fund scheme, the first step is to understand the basics of investing and make sure that you have an ‘investment goal’ in mind. Once you have decided on an investment goal, there is no mischief for investors starting early by investing even small amounts in mutual funds. This can be done via a Systematic investment plan (SIP)

Start with SIPs

Small investments which have been made over some time will give better returns than large investments made just one time. Hence, if you do not have high savings, then I would suggest that you start with systematic investment plans (SIP) which allow small specified sums to be invested regularly. Some people may argue over the fact that small investments done at one time will give better returns than small investments done over some time.

Don’t run after returns, chase value

Generating 15% consistent returns is better than generating 50% returns in the first year followed by a loss of 5% in the second year. Choose a that invests in fundamentally strong companies whose returns are consistent and not very volatile.

Being in the 30s, you have a long investment horizon and can afford to be an aggressive risk seeker. Going for equity-oriented funds can deliver high returns over some time. Market volatility burns less when you invest for the long term. Diversity is a strength and having a mix of equity and debt funds can work well.

Why you should not invest in equity

Differing from the most popular opinion these days, there are lots of reasons why you should not invest in equity mutual funds.

Why you should not invest in equity

Moreover, the cause can invest in an inappropriate source of income, maybe your prospects are not too associated.

There are lots of articles, explaining why you should invest in equity mutual funds, but nobody talks about the dark side of equity mutual funds.

Here are some important reasons why you should not invest in equity:

Capital Protection

Your capital is not that protected in equity mutual funds. At any given time in equity, your valuation can be below the initial capital invested. Therefore, there is no guarantee of capital protection, un, like other fixed saving instruments. This is all because equity MFs are subject to market risks. However, if you’re someone who desires that their capital should be protected at all times, notwithstanding lower returns than equity MFs are not for you.

2-3 Years of Investment

Equity MFs are not 2-3 years of investment. You need at least 5 years of investment, even more for more aggressive and volatile schemes. For some schemes, you won't even have a longer time horizon than 5 years because the fund can be tremendously unstable and therefore needs to go through various cycles before it stabilises. Therefore, if you’re not certain you can stick for a long time and need the money before 5 years then it’s better to stay away from equity MFs.

Fixed Returns

As mentioned earlier, Equity MFs investments are subject to market risks. The share market can be extremely volatile in the short run. Consequently, the returns equity is also not fixed. In equity MFs, your returns are dependent on the market movement as well as the performance of your scheme. If you’re someone who likes to know beforehand your total returns or prefers fixed returns then equity funds are not for you.

Avoid Equity As it is Risky

Just when you think you can make an entry in the wonderland of investment, you get hit by the disclaimer that ‘Mutual funds are subject to market risks.’

We know that there is a risk in investing in the stock market. In India, most people are away from the stock market and even MFs.

Investing in equity is a risky proposition. An investor needs to take well well-calculated, not blind risk risks and should know how to invest as well as investment principles and techniques.

At the same time staying away from equity is also a risky proposition, because inflation is like poison, which will eat the value of money over some time. That is if inflation is 10%, your investment should give at least a 10% post-tax return to maintain the same monetary value for your investment. Equity is an investment option that has the potential to beat inflation in the long term.

For instance, there were two classmates, Rahul and Kunal. They both had the same level of knowledge when they completed their graduation. Rahul hates to take risks. But Kunal is always ready to take the risk. After 15 years of their graduation, they connected on social media only to know that they both are working for the same enterprise. Rahul was working as an account executive in the Delhi branch and Kunal was working as a director-finance in the Mumbai branch, the headquarters of the company.

So, what made this huge difference? The willingness and ability to take the risk. Likewise, an investor should not hesitate to take the risk. The ability & willingness to take the risk by investing in equity will possibly increase your wealth significantly.

One thing you must keep in mind is that every investment has risks, you cannot avoid any investment plan just because it's too risky. Likewise, don’t hesitate to invest in equity just because it's risky. Beat inflation and accrue real wealth.