Things to be aware of when starting mutual fund investment

K. ARAVIND

The stock market will be on the upswing for a few years and the next few years it might fall. But in the long run, the market has outperformed for investors on an annualised basis.

In the long run, one should try to make a profit by investing with goals in mind. An equity fund investment should be for long-term goals. Investing in the stock market for short-term goals is a very risky approach. For short-term goals, the fixed return should be invested in almost certain debt funds. Continue to invest until long-term goals are achieved and allay fears and greed about the stock market alike.

Investors need not fear fluctuations. Stock market trading is the process of going through price fluctuations every minute. If the investor loses focus on the ups and downs, it will be difficult for him to continue investing. Therefore, it is important to be prepared to approach fluctuations in a balanced way. Investors need to make the most of the value fluctuations created by fluctuations through a long-term approach.

For the general public, mutual funds are the best way to invest in the stock market. It is best to do the same with a Systematic Investment Plan (SIP). But good results can only be achieved if SIPs remain in a long-term position and do not invest in SIPs during fluctuations. Investors need to be more patient if they want to reap high returns. If we have the patience to continue investing in stocks for a long time, we can reap the benefits.

Just as stopping SIP investments when the stock market crashes can cause a rift in long-term goals, so SIP investing or stopping investing and making profits can adversely affect long-term goals when the market is high. A person who has invested for a long period of ten years, such as making a profit after three years, may be hindered from properly fulfilling the investment objectives set after ten years.

Investors should pay special attention to ensure diversification in investment. Do not limit your investment to equity funds. Fixed income plans, including debt funds, should also be represented in the portfolio to adjust risk.

Diversification is also needed in equity funds. The most suitable for this are multi-cap funds. Multi-cap funds are systematic investments in large cap stocks, mid cap stocks and small cap stocks across different tiers based on market value. Multi-cap funds are able to give investors the benefit of these different categories of stocks in different market climates where they perform well. Instead of focusing on any particular category of stocks in all market climates, investors can diversify their investments through multi-cap funds investing in stocks that are at different levels of market value.

Excessive diversification can adversely affect investment. It is better to limit the investment to two to five funds. Excessive investment in midcap and small-cap funds should be avoided. Many investors are seen investing only in midcap and small-cap funds. Funds that invest heavily in midcap and small-cap stocks are the biggest losers when the market is down.