Diwali is a good time to revisit some of the first principles in managing your mutual funds (MFs).
Do your KYC in time
We’ve told you this before, we’ll say it again. You may have done your know-your-customer (KYC) procedure earlier, but you will, most probably, need to do it again. If you have done your KYC registration before 1 January 2012, this one’s for you. As per the revised KYC norms issued by the capital market regulator, Securities and Exchange Board of India (Sebi), you will now need to get an in-person verification (IPV) done. In simple words, your distributor will need to verify that you are alive by physically taking a look at you.
Download the KYC update form from the website of the Association of Mutual Funds of India (Amfi, the trade body of the Indian MF industry), fill up the first two parts of the form (part A and B) and submit it to either the offices of registrars & transfer agents such as Computer Age Management Services or Karvy Computershare Ltd or MF houses or your distributor, with a copy of your self-attested permanent account number (PAN) card.
Keep duration in mind
The most important thing you need to keep in mind is your time horizon. Two investors with different time frames, say six months and four years, respectively, will need to buy different schemes. While liquid and ultra short-term funds are meant for very short horizon like a month to three, short-term funds are usually recommended if you wish to stay invested for six months to a year. Avoid equity funds if you need the money within three years; it’s risky. If there is a mismatch between your time horizon and the type of fund you choose, your returns may go haywire and you could end up disappointed.
Start an sip, but invest lump sums too
New Year is usually a good time for many to start something new and auspicious and starting to invest is a sensible option. Ascertain how much of your monthly income you can set aside every month and start a systematic investment plan (SIP) with well-managed schemes. Start with two or three schemes, preferably large-cap oriented ones if you have never invested in MFs before.
But just because you have ongoing SIPs, doesn’t mean you can’t invest lump sum amounts in the same schemes. If you end up with some lump sum money once in a while, you can always invest it in any of your ongoing SIPs.
A bad fund is a bad fund
If you’re stuck with a bad fund, it’s always best to exit it. Many of us try to time the market and hope for the fund to recover somehow, a little, in the hope to cut short our losses. But a bad fund is a bad fund. Since we can’t predict which way the markets, and thereby this bad fund, will move in future, it’s best to exit and switch to a better-managed fund.