Know The Essential Things About Investing In Equity Mutual Funds

Both, new and existing equity mutual fund investors start investing to save for their long-term goals. What they need to be aware of is that the volatility is a part and parcel of the stock market and returns may keep fluctuating over time. However, when held for long period, the NAVs are seen to drift upwards thus delivering a return higher than what other assets give.

- Sanjeev Puri

Here are few key things to keep note of while investing in equity mutual funds:

Match your goals to schemes

Choosing mutual funds (MF) to save for your goals needs careful consideration. Not all funds can meet your expectations. You will need to link your goal with the investment horizon and then choose the right mutual fund scheme to achieve your desired goals. When it comes to planning for your child’s future needs, say, around ten years away, you may want to stick to large-cap funds as they invest in well-established, top-rung companies and are, therefore, less volatile. For goals, which are around five years away, balanced mutual funds can be the answer. Similarly, for goals that are 1-3 years away, debt funds should be the ideal parking slot. For your needs that are less than a year, shorter-term and liquid funds should be your investment avenues.

Never ignore the objective of the scheme

Investing in a specific MF scheme without knowing the scheme’s objective is like boarding a train without any goal in mind. Every fund’s information document including the fact sheet carries the objective of the scheme. Read it to align to your goals. Depending on the objective of the MF scheme, the fund manager invests in the stocks of large-, mid-or small-cap companies, or in a mix of them. Whether the scheme would diversify across industries or be concentrated in one or few specific is also conveyed from the objectives.

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