The spectrum of this blog is to enumerate the most common questions proposed by investors regarding mutual funds.
Q.1 How to select a Mutual Fund?
There are so many fund houses and each fund house has so many funds. So in which fund you should invest in is the big question. A financial planner can help you with that. However, yet it is important for you to understand what all kinds of funds are there. You can focus on three or four kinds of funds, however, there are various types of funds built for institutional investors but as far as the retail depositors or investors are concerned, there are there important categories that you should keep in mind:
a. If you want to invest for 6 -12 months
When you are investing for 6 to 12 months, then not necessarily you are interested in the tax benefits, here you should invest in ultra short-term funds.
b. If you want to invest for 1-3 years
If you want to invest for a relatively longer duration say 1 to 2 years or more, then you could potentially look at a short-term fund which essentially invests in short duration 1, 2 or 3 years.
c. If you want to invest longer than 3 years
If you are investing for a longer duration, then you should invest in two categories of funds: medium-term funds or credit risk funds. If you are a long-term investor and want to invest for longer than 3 years, then these two funds can potentially optimize your returns. The thumb rule in mutual fund investment is that the longer you stay invested the better returns you can expect. Both medium-term funds or credit risk funds earn a carry of 10 to 10. 5 per cent in a reasonable duration of 2-3 years and would do good for you in longer horizon.
Q.2. Are mutual funds better than bank fixed deposits?
As long as you compare with the right mutual fund, almost always mutual funds have proved to be better than fixed deposits. Let’s say you have 5 years money and instead of depositing in a 5 year fixed deposits, you put your money in a cash fund, then that’s a bad call because cash fund is not designed for 5-year investment good as a 5 year fixed deposit. But if you put money in short-term fund or medium-term fund or credit risk fund, then these funds have the potential to perform better in 5 years of time in comparison to fixed deposits. Thus, it is important to allocate your capital to the right fund. If you cannot allocate in the right kind of fund, then your financial planner can assist you with that and you will always be better off.
Q.3. I am planning to buy a house and I am currently accumulating down payment can mutual fund help in this?
For this kind of requirement, you should invest in funds like low duration fund, which do not necessarily raise significant risk. There’s not much market to market risk in these funds. Many of us keep a large part of our money in savings account, earning just 3-4%, however, mutual funds can improvise this substantially because there are funds that can provide you 8%, 9% or even 10%. So, therefore, it’s important that you invest in the right mutual fund and do not let your money be ideal around in bank, especially in the savings account.
Q. 4 How do I invest in mutual funds – direct, online or through the help of financial planner on the agent.
The way you do not self-medicate ourselves, you shouldn’t self-invest unless you have a very good grip on it. There are so many funds and fund houses, which fund should you invest in can be rightly suggested only by a financial planner. Individually, you may actually end up in making a big mistake in allocating your capital inefficiently. So it is important to get assistance from the financial planner to interim that you do the right investment in the right product wisely. You should invest with the help of financial planner unless you have a good understanding of funds and market. Investing online is also a good option, but still, the planner has a significant role. Even before investing online, it important to have a professional advice as far as fund selection is concerned.