Mutual Funds – 7 Golden Rules of The Game

Published by Sharekhan Education | October 24, 2021

Mutual Funds – 7 Golden Rules of The Game

Mutual Funds especially the equity oriented ones have in recent times become a favorite investment destination for many; probably due to new heights being scaled by the stock market. Who could have predicted such exemplary growth after its fall in March 2020? Well, whatever the reasons mutual funds have gained entry into almost every Indian household. With digitalization investing in Mutual Funds has become very easy and simple; right from a retiree to a millennial to generation Z everyone wants to be a part of this mutual fund game.

Whether you are a stalwart or a novice read on then to know the seven golden rules of the game before you invest.

The first rule:

Know what you are investing for; is it to buy that new car in 6 months’ time or send your child abroad for her professional education in 8 years’ time or are you investing for your retirement in 30 years’ time. Knowing your financial objectives will give direction to your investing decisions.

The second rule:

Know your limitations before you invest- not everyone can jump into deep waters and stay afloat you know. Mutual funds are in fact investments in the stock and debt market and are subject to market risks. Knowing your limitations will help you take the right investing decisions don’t you think? So before you invest understand the inherent risk in the selected scheme and match it to your risk tolerance.

The third rule:

Stay invested for the long term. This is a very important rule which is mostly ignored by many. People generally tend to time the market instead of spending time in the market. Churning your mutual fund portfolio often is not a good idea. This will only cut into your returns and make it a costly affair for you. Staying put for the long term has its own benefits; it will not only harness the power of compounding but also make the gains more tax efficient for you.

The fourth rule:

Keep your portfolio simple and small; don’t go overboard – don’t over invest. Investing in complex products or investing into too many schemes may not be a wise decision. Too many funds will increase not just management time but also costs for you. Limiting your investments to schemes that match your goals, time horizon and risk tolerance will be the right thing to do.

The fifth rule:

Go the SIP way- everybody wants to make a quick buck and with markets at current highs it is possible that you are tempted to invest a big chunk of money too. But wait and think a little, market swings like a pendulum, you never know how high it will go nor when the swing will reverse. What if market goes topsy-turvy and your money goes for a toss? Going the SIP way will make volatility work in your favor.

The sixth rule:

Stop procrastinating and make a start. Age is no bar for investing, the earlier you start the better. Generally it is seen that people procrastinate and delay investing to a future date which ideally never comes. Every delay of 5 years will only result in doubling your investments to achieve the same goal. So stop delaying your investment decisions and take that jump now.

The seventh rule:

Select the best path to your destination. You can invest either directly or take the services of a qualified broker or advisor. The choice is entirely yours. If you are someone who likes to manage their investments on their own, you can surely invest online either through the fund’s website or through any online platform. But if you like to seek advice or need help investing, services of the broker/advisor may suit you better.

To wrap it up these 7 golden rules will help you select and invest in Mutual Funds the right way.

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……Happy Reading!!