By Akhil Chugh
Date April 21, 2021
7 Tips to be a Successful Mutual Fund Investor
Investing is essential to create long term wealth to meet your financial goals in life. Over last few years in India, Mutual Funds have gained lot of interest from investors over traditional form of investments like FDs, PPF owing to its high return potential. Investments are being made both in Debt funds, suitable for risk averse investors with safety and regular returns and Equity funds, suitable for moderate to high-risk appetite investors offering high growth, though with volatility.
Investing in Mutual Funds is not a rocket science, but still not everyone enjoys the same success level. Patience and right approach is the main secret of successful investors. After managing investment of 1100+ HNI clients across India, Net Brokers have observed that there are certain practices that are fairly common among successful investors and following them can help investors maximize their returns from Mutual Funds’ investments:
1. Understanding your investment goal:
For any investment to be successful, understanding your financial goal is key. The goals can vary from retirement planning to child education planning. Goals can also be classified based on asset allocation – maintaining a fixed proportion of investment in debt and equity funds. Large number of mutual fund investors make mistake of choosing the mutual fund schemes based purely on their past performances. Thus, lot of investors end up with investment in schemes not fit for their risk appetite and any slight unexpected movement in the performance make them quit their investments. Thus, creation and identification of goal and the risk appetite is very important to choose the right mutual fund align with your financial objective.
Suppose, you want to have a corpus of 1 Crore INR after a period of 20 years, for completing a definite plan, say Child Education then, you need to start a SIP or invest lumpsum amount in Mutual Funds in a similar manner to reach that particular goal. If that is not done, investments happen without a purpose and you will never know when to stop or how much to invest etc.
Like in this case, to reach the goal of INR 1 Crore after 20 years, you need to invest only INR 10,975 through monthly SIPs (at 12% CAGR). However, if you were to invest in lump sum to reach this goal, the one-time investment amount would be Rs 10.37 Lakhs.
Understanding your financial goals gives a direction to your investments!
2. Stay invested for a longer time horizon:
Patience is one of the key ingredients for a successful mutual fund investment. Investments in mutual funds are not like stock trading, where you can make quick bucks; it requires you to stay committed for the long-term. You need to be patient. This is exactly what every successful mutual fund investor have mastery over.
If the investments have been made in the right kind of funds through SIPs, aligned to your financial goals and risk appetite, in the long run the law of averages will catch up and investors will reap the benefit of power of compounding.
Thus, even when you witness volatility in the market, it is best advised to continue investing periodically through SIP (Systematic Investment Plan) and stay invested.
3. Don’t try to time the market:
It is very difficult even for the seasoned investors to time the market correctly. Timing the market means buying when the market is low, and selling when the market is high. The equity/ stock markets are highly unpredictable and it is not possible to predict its movement. Lot of new mutual fund investors try to time the market to make most out of its investments with the aim of getting the higher returns. But most of the time, they end up with negative returns due to market volatility.
Thus, the best strategy is to keep investing regularly in Mutual Funds via SIPs, to average out your investment costs. SIPs make timing the market irrelevant.
4. Periodic reviewing & rebalancing:
For a profitable mutual fund investment, reviewing and rebalancing the mutual fund schemes portfolio at regular intervals is as important as investing in them regularly. So, keep a track of your investments and check the performance of your schemes at least once in 6 months. If you find that the scheme is not performing well from a very long time and is lacking behind in comparison to the peers, you should consider switching to a different one. To make sure that you can easily track your investments, opt for online investment portals like Net Brokers.
This is important because the performance of various funds changes over time due to reasons such as fall or rise in markets, change in fund manager or change in the scheme investment objective etc. Regular monitoring ensures that funds performance and objectives are aligned for meeting your objectives and if not, restructure your portfolio accordingly.
5. Keep your Mutual Fund portfolio diversified:
“Don’t keep all your eggs in the same basket” aptly applies to mutual fund investments, and successful mutual fund investors abide by this mantra.
Mutual Funds have a lot of different categories, and the schemes from these categories follow a different investment approach and style because of which the risk associated is also different.
By investing in different funds across sectors, you may not gain more returns, but you can minimize the risk of loss if any of the funds underperform or if a specific sector is not performing. So, based on your financial goals, choose schemes from different categories and asset class, and make a portfolio that is a perfect combination of stability and growth. But, make sure that you don’t over-diversify or under-diversify your mutual fund portfolio as it will have an adverse effect in terms of cost. In case, you are a new investor, contact Net Brokers experts to get a mutual fund portfolio that best fit your goals.
6. Step-up your investments with rising income (SIP Top-ups):
Sticking with the same investment amount while investing for the long term via regular SIPs will provide you with good returns. However, to make sure that you get the best growth from mutual funds increase your SIP amount every year via SIP Top-ups. Just increase it with 5%-10%, based on the increment in your annual income and you can see the huge impact it will have on your total corpus.
Eg a SIP of Rs 15,000 done for 15 years would create a corpus of around Rs 71 Lakhs @ 12% CAGR, while when you keep stepping up your SIP 10% annually, the final corpus will be around Rs 1.1crore.
This is one of the important tip which you should follow if you want to become a successful mutual fund investor and enjoy an exponential growth from the mutual fund investments. In case you are a new investor and want to start your investment journey, feel free to connect with the Net Brokers experts who will provide you with the best options after analyzing your requirements and goals.
7. Trust your financial advisor:
The role of a knowledgeable and reliable financial advisor cannot be undermined. A trustworthy financial advisor plays a critical role in managing the client’s investments as per his financial goals, suggests required action if any unexpected situation arises, guides the clients when things are not progressing as expected, and inculcates financial discipline in clients on other money matters like loans.
Net Brokers over its more than three decades of experience has served 1100+ clients by offering objective, innovative and client-centric financial services solutions tailored to their long-term goals.
Follow these practices to become a successful mutual fund investor and reap exceptional benefits from mutual fund investments. You can also be a successful investor with the right approach and discipline. If you are a new investor seeking professional guidance to start your mutual fund investment journey, connect with us & download our mutual fund app today.
Happy Investing!