WHAT CHOICES DO MUTUAL FUNDS OFFER INVESTORS?
Investors have several schemes to choose from different asset classes, be it equity, hybrid, fixed income, or alternatives like gold and silver. Some schemes also combine assets like equity and fixed income to reduce volatility. There are multi-asset funds too which combine equity, debt, and gold. Fund houses offer active mutual fund schemes where the fund manager is involved in the investment and passive funds that merely mimic an index. Investors can choose from as many as 44 fund houses that offer various schemes with different styles.WHAT SHOULD AN INVESTOR LOOK FOR IN THE FIRST MUTUAL FUND SCHEME?
An investor should understand his/ her risk profile, goals, time horizon and return expectation before choosing a scheme. He can take professional help or do it himself. Since many first-time investors move into mutual funds, after investing in products like fixed deposits, financial planners believe such investors could opt for aggressive hybrid funds or balanced advantage funds that combine equity and debt. First-time investors, who are in their first job, and who have a time horizon of five years and above can consider large-cap active funds, index funds or flexicap funds. For investors seeking a return of 10-12% and have a time frame of over five years, equity mutual funds can work well. Investors with a horizon of less than five years and do not want high risk, can opt for hybrid funds.
WHAT SCHEMES SHOULD FIRST-TIMERS AVOID?
First-time investors should avoid lumpsum investments in midcap and small-cap schemes, narrow thematic or sectoral funds, and factor funds. Such investors must understand the market’s volatility before moving into higher-risk products. Mid-caps and small-caps have higher volatility, which could unnerve first-timers; hence, they should opt for these schemes after knowing their risk tolerance.
WHAT TIME FRAME SHOULD FIRST-TIMERS IDEALLY LOOK AT?
First-timers must understand that mutual funds are meant for long-term wealth creation. Equities help create long-term wealth but there could be nearterm volatility. First-timers should avoid equity funds if they have a horizon of less than five years.
