Important Things to Keep in Mind for First Time Mutual Funds Investor

As of now, i.e., end of 2017, everyone is talking and wanting to create wealth through mutual funds. This is not surprising as markets have given high double-digit returns in the last 4 years. As is the story for every Bull Run, today greed has become the overriding factor. Let us take you back to 2011-2012. Everyone talked about real estate. Now no one does. This is the story for all asset price cycles. Retail investors invariably enter at the fag end of the rally and are ill prepared for the fall.

We at mutualfundwala are assisting the retail public in investing wisely and ways to minimize losses.

Tenure of Investment: Each new investor should have the precise tenure of investment in mind. Let us reiterate, Equity mutual funds are best suited for a time horizon of over 7 years. Any tenure less than that needs risk mitigation. This can be done through products like balanced funds, Dynamic PE funds, SIP, and other low equity funds. If the tenure of investment is less than 3 years, then at this stage it is most sensible to avoid equity mutual funds all together. You may consult an expert financial advisor and seek his/her opinion on the same. Longer the tenure of the investment better shall be your return in equity funds. Now how is tenure to be decided? It is decided solely by the financial objective. But, if you don’t have any explicit financial objective, then you need to figure that out. Financial objective(s) will enable you in setting psychological framework - risk appetite, lock-in period, amount to be invested, frequency of investment etc.

Financial Objective -> Tenure of investment-> Design a Financial plan

Analyze the risk factor:Risk and return are the only 2 most important factors that need deliberations before you start investing. Everyone knows higher the risk higher the return. However, this is too simplistic. More then the returns, retail investors need to figure out the risks at the time of investing. Let us illustrate, in Nov 2013 Indian stock markets were underpriced. Valuations were extremely attractive. However, very few people invested. The reason was the preceding 4 years showed little or no returns. Today, Nov of 2017, valuations are extremely expensive. Most of the stocks are unreasonably overpriced. Earnings growth is under 5% (for Bse Sensex 30 shares since 2009). FII’s are net sellers. However, investors are coming in hordes. The reason is the trend line of the past 4 years. This is a story for every asset price cycle.

Don’t talks or act like an expert:Retail investors are to be mindful of the fact that no one is an expert in stock markets. More so if you have just started investing. Start slowly and preferably start as a SIP investor. Wait till you learn the ropes. And always be mindful that stock markets are irrational, random and next few years returns can be totally different from the last few years.


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