Select the right fund, start counting gains

It is always a challenging task to invest our hard earned money. Every investment option has certain risks and potential rewards associated with it. In general, investments with higher return potential have more risk, while investments with lower return entail lower risk.

Therefore, any investment made without doing proper homework can prove to be very risky. One of the most important things you should consider while investing is how much risk you are willing to take. Besides, diversification over different asset classes i.e. equity, debt instruments and fixed deposits etc., is important because not all investment perform at the same time.

The more diversified a portfolio, the less likely it is that you will be affected by the poor performance of a single investment. Another important aspect that requires special attention is selecting the right investment vehicle. Investing in mutual funds is one simple way to get a diversified investment as well as to balance investment risk. Moreover, investors with modest sums of money are fairly restricted as to what they invest in if they try to do so direct. But via a mutual fund, someone with a few thousand rupees can invest in securities of many companies.

Besides, mutual funds bundle a variety of investment options into tiny little packages, containing anything from debt to equity to money market instruments. All you need to do is to pick a few off the shelf and you can invest any asset class that you have chosen. Moreover, with the variety of funds made available today, it is possible to have a highly sophisticated portfolio only with the help of mutual funds.

However, to be a successful mutual fund investor, it is important to select the right fund. To ensure you are selecting the right funds that are appropriate for your needs, consider the following given in the box.

All these factors will have a direct impact on the fund you choose. A financial advisor can help you choose the funds that match your investment objectives.

The offer document of a MF scheme clearly states its investment objective or objectives. Make sure the fund’s objective is compatible with your reasons for investing in it. As an investor, you may have a personal yardstick which you may aim to better with your investment in a MF scheme.

This may, for example, be the returns that you have been getting from some of the other investment options like deposits, bonds and small savings schemes. As long as your investment in MFs achieves that, you will be satisfied. However, to benefit from this wonderful investment vehicle in the right manner, it is necessary to look beyond this.

To ensure that you get the best in terms of returns on your hard earned money, it is necessary to compare your scheme’s performance with that of other schemes in the same category over different time periods. Remember, the performance of a scheme is best measured in terms of total returns. Total return is the percentage of change in the Net Asset Value (NAV), with the ending NAV being adjusted to take into account the dividend distributions made by the fund.

(By arrangement with Wiseinvest Advisors Pvt. Ltd)

The way to be a successful investor

Determine what your financial goals are:
Are you investing for retirement? Child’s education? Or for current income?

Consider your time frame: Do you need money in 6 months or 6 years? The longer your time horizon, the more risk you may be able to take

How do you feel about risk?: Are you in a position to tolerate the ups and downs of the stock market?
It is necessary to know your own risk tolerance. It can be a guide for choosing the right schemes
Remember, regardless of the potential returns, if you are not comfortable with a particular asset class, you should
consider other options.