Mutual Fund Investor: How to become good at Investing?

Every year, we find Indians investing in some or the other investment scheme to fulfil their investment objective. Some invest to save taxes while others invest to fulfil their long term goals like retirement planning or building a corpus to secure the future of their children. Some have short term goals like buying a car, while others have medium term goals like planning for their wedding. By now you must have realized that every individual’s financial goals are going to vary depending on what their investment objective is.

But the real problem is that there are an infinite number of investment schemes to choose from. Those who are completely new to the world of investing may find difficult select an appropriate investment scheme. This also leads us to the fact that if you want to get better with investing, you may have to give yourself some time to learn and understand the tricks and trades of it.

Those who are successful with investing are the ones who rationalize their decisions. They do not let emotion come in the way of their investment decisions. Individuals who are successful with investing are patient and know how to navigate through volatile markets.

In the recent past, mutual funds are being considered by retail investors over conservative investment schemes. Mutual funds are supposed to offer capital appreciation and may help an individual achieve his/her short/medium/long term financial goals.

If you are new to mutual funds and wish to become a better investor, here are few tips that might help you excel-

Try and be good at financial planning

Financial planning is essential and the first step towards becoming a better investor. While making a financial plan some of the questions that one should be asking themselves is –

“What is my investment objective?”

“What are my short term and long term goals?”

“What is my risk appetite?”

“What is my investment horizon”?

We will get to the risk appetite and investment horizon later in the article. But the fact remains that when you have a defined set of realistic goals, investment planning may become simpler.

A mutual fund with a proven track record may not necessarily give similar returns in future

Although it is advisable to check for a mutual fund’s past record before considering an investment, investors should remember that just because a particular fund has been a top performer in the past it may not necessarily continue giving similar results in the future as well. Do not choose a fund just on the basis of its past performance. Rather look for a fund that has been a consistent performer.

Just because the NAV of a fund is low that doesn’t make it a good investment option

Let’s say for example if an ABC mutual fund’s NAV is 35 and the NAV of another XYZ mutual fund is 55. Just because you will be allotted more units in quantum with your investment amount if you invest in ABC mutual fund, this does not mean that it is a better mutual fund than XYZ. The NAV of a mutual fund does not determine its growth. It is better that you consider a mutual fund with a good AUM (Asset Under Management) rather than just deciding on the basis of its NAV.

Understand your appetite for risk

Some mutual funds like equity funds predominantly invest in equity and equity related instruments. This makes them a fund with a high-risk profile. Do you have the appetite to risk your finances with such an investment vehicle? To answer this question, every investor should determine their risk appetite for making an investment in mutual funds. A risk appetite is an investor’s ability to risk their finances with an investment with the hope of seeking capital appreciation in the long run. Investors are advised to invest in mutual funds according to their risk appetite.

Investment horizon

An investment horizon is the number of years one may have to remain invested in mutual funds in order to achieve their financial goal. Someone who has long term goals like retirement planning must also have the time to remain invested for the long run. The investment horizon of an investor may vary depending on their investment objective. Some equity funds like ELSS come with a statutory lock in of three years. So if you are planning to get tax benefits by investing in a tax saver fund like ELSS, you may have to continue investing for three years.

Do not wait to time the market

Remember that even seasoned investors find it difficult to time the market. So rather than waiting for the ‘right’ opportunity, the sooner you invest in mutual funds the better it is. The market is uncertain and the concept of selling high and buying low may not be feasible for mutual fund investments.

These were some of the simple tricks which, if you keep in mind in your investment journey, may help you become a better mutual fund investor. For more tips and to manage your investments efficiently, download our mutual fund app today.

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