How to invest in mutual fund schemes: Tips and facts

Mar 9, 2018 / Advisorkhoj Research Team | 92 Downloaded | 5663 Viewed | |
How to invest in mutual fund schemes: Tips and facts
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"Whatever you frequently think and ponder upon, that will become the inclination of your mind". This saying stands true for almost all investors who are anxious about their investments and the favorite question that looms large in their minds is "Have I picked the right mutual fund schemes?"

Well, this is even true for people who have been deprived of their right to know the necessary details and facts about the mutual fund schemes they have already invested in as suggested by their respective mutual fund advisor. A wise mutual fund advisor is one who tells and educates whether a mutual fund portfolio is ideal for a person by understanding the investor's risk profile and the investment horizon and if the same can help the investor achieve his or her investment objectives. An investor should always look for longer investment horizon and while investing in mutual fund schemes which are with higher risk element, like diversified equity mutual funds; mid and small cap mutual funds or sectoral / thematic funds, etc.

There are investors who use a combination of mutual fund schemes to create a mutual fund portfolio. They make a combination of large, mid and small-cap and multi-cap schemes to make a mutual fund portfolio without understanding the fact that the composition of the portfolio should be in line with their risk profile. For example, if an investor goes for large investment in sector scheme or a small-cap scheme, it would hugely increase the risk associated with the overall mutual fund portfolio. In short, it is advisable to choose mutual schemes that match investor's risk profile. And investors should be mindful of this fact even while adding schemes further in their portfolio.

We suggest that you should read this piece if you have any misconception due to which you are still not investing in mutual funds

The main intention of an investor is to make good returns from their mutual fund investments. But most of them are unsure about fetching returns from their investment strategy and whether they have invested in the right mutual fund schemes. There may be many questions and doubts that may arise and investors need to ensure that they are investing enough to achieve their targets without fail. The following may help an investor to invest like a thorough professional in mutual funds and achieve all their financial goals!

Did you know how you can plan your life goals with mutual funds?

Don't concentrate too much on schemes

First and foremost, sit down and list all your financial goals. Never start with a mutual fund scheme or category in mind. Analyze how much time is required to achieve each of these goals. And finally, calculate the risk factor (you may try risk tolerance calculators/ or risk profilers available online) that you may take to achieve those goals.

If you are looking for short-term goals devoid of risk factor, then you can try safer funds like debt mutual funds. However, consider equity mutual funds as an ideal investment option to meet long-term goals, which also has the potential to offer superior returns than other asset classes over a long period of time.

While going for debt mutual fund schemes, select a scheme that matches your investment horizon. For example, liquid funds are good if you are investing for a few days or weeks while a short-term debt fund is best if an investor choose to invest for a couple of years.

But how do you know if you should invest in short term of long term debt funds? Please read this blog!

Risk varies even within the various categories of equity schemes. Choose equity-oriented hybrid schemes or balanced funds if you are investing for the first-time and are a conservative investor. Moderate risk profile investors can even choose large-cap funds while investors with moderate high risk profile can go for multi-cap schemes. Likewise, mid and small cap funds can be ideal for investors with high taking ability.

Investors invest in equity mutual funds only if they are looking for long investment horizon, i.e. not less than five years. However, investors investing in mid and small cap mutual funds should have a horizon of 7 to 10 years.

If you know the difference between large cap and midcap equity mutual fund investing you can do better with your mutual fund portfolio.

Emphasis should be on consistency

When it comes to choosing a mutual fund scheme, everyone has their own strategy. Some investors prefer the star-ratings, whereas some others look for the top-performer in the performance chart.

Investors should ignore short-term performance and prefer long-term performance consistency. Choosing mutual fund schemes that has been a consistent performer during different market cycles over a long period will be ideal.

Any idea how important is past performance in a mutual fund scheme?

Review your portfolio

Investors should always keep a track of their investments whether it is mutual fund or other products. Equally important is to review the portfolio at least once every year. Even though the annual performance of the scheme doesn't reveal much about the scheme, but comparing the performance of the mutual fund scheme with its benchmark and category will help an investor to understand how it has fared in a particular period. Continue with the mutual fund scheme if the scheme has beaten both the benchmark and category average returns, but put the scheme on the watch list if the scheme is under-performing for a year or more. Analyze the reasons for its under-performance and find compelling reasons if you want to hold.

Try to give the under-performing mutual fund schemes a little more time. If nothing changes, sell the scheme and invest the redemption proceeds in a better -positioned mutual fund scheme.

While reviewing your mutual fund portfolio you must follow some simple asset allocation strategies. How? Read here!


For an investor, it is important to identify goals, decide the investment horizon and assess risk profile before making a mutual fund investment.

An investor should choose equity mutual fund schemes if they have high risk appetite and are looking for long-term investment horizon of five years or more. We suggest you to read how to understand you risk capacity

Investors should analyze whether they are a conservative, moderate or aggressive investors. Based on the facts, they should decide the kind of equity mutual fund scheme they want to invest. Conservative investors should invest in only equity-oriented balanced funds or large-cap mutual fund schemes; while a moderate investor should invest only in large-cap and diversified equity schemes. Mid-cap schemes, small-cap schemes and sectoral schemes (if one possesses adequate sector knowledge)are ideal for a high risk take or aggressive investors.

However, investors who can take moderately high risk, diversified equity mutual funds could be the best long term bet!

Investors can use the simple steps mentioned in this article that will help them to fund their various goals, including financial goals, too.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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