Mutual funds are an investment tool where AMCs collect money from investors sharing a common investment objective and invest this pool of funds across the Indian economy. A mutual fund portfolio is usually diversified with the allocation of assets taking place across various instruments like equity, corporate bonds, debt instruments, treasury bills, government securities, etc. The mutual fund is a professionally managed fund, where the fund manager buys / sells securities in line with the fund’s investment strategy to meet its investment objective.
The market is flooded with mutual fund products offered by AMCs that meet the investment purpose of almost every individual. Remember, there are several categories under the mutual fund, which are further sub categorized depending on the fund’s unique attributes like investment objective, asset allocation, fund size, etc. Hence, choosing a suitable fund is essential for financial planning.
What is SIP?
The best part about mutual funds is that you can systematically pay mutual fund investments via SIP. Systematic Investment Plan or SIP is an electronic and hassle free process of paying your monthly mutual fund premiums. All an investor has to do is inform his/her bank, and every month, a fixed shall be debited from their bank account and transferred to the mutual fund. An investor may continue to investing mutual funds through SIP till their investment objective is met.
If you are new to the world of investing and wondering how to choose a suitable mutual fund scheme through SIP investment, here are a few to bear in mind:
Investment objective
Ideally, every individual, before investing their hard earned money in any financial scheme, should be asking themselves the main reason behind their investment. That’s because if you wish to invest to meet long term goals like retirement corpus, you may need to invest in equity oriented funds. On the other hand, if you have short term goals to achieve, you may want to choose from different debt funds available. Also, for meeting medium term goals, one may opt for hybrid schemes, which are a mix-match of equity and debt funds. So, having a realistic financial goal always helps in understanding the kind of mutual fund one should invest in.
Risk appetite
Remember that mutual funds invest in equity markets, making them a high risk investment. Also, these funds are not obligated to give their investors a fixed income. That’s because returns from mutual funds are never guaranteed. In fact, there is no guarantee that one may even receive their original investment amount. Hence, it is better to understand your risk tolerance before investing in the type of scheme or fund.
Past performance
Before you invest in any mutual fund, you should first take a look at the past performance of that fund. It is better that you check the track record of the fund and also take a look at its past three months, six months, one year, 3 three years, and five year performance. Although it is true that a fund’s past performance may not reflect on its present or future performance, it gives investors a rough idea of whether the fund is worth investing in or not.
Fund manager
When you invest in mutual funds, remember that you are entrusting your hard earned money at the hands of the fund manager. It is the duty of the fund manager to buy / sell securities in accordance with the scheme’s investment strategy to meet its investment purpose. Hence, it is essential that the fund is in the hands of an experienced fund manager.
We hope that the above pointers come in handy when making a mutual fund investment decision. But if you think that you need more guidance, you can always consult a mutual fund advisor. Do not rush towards any investment decision and do enough research before investing in a mutual fund.