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Mutual funds investment plans for a beginner might be a nightmare if the investor is unaware of the basics of equity investment. According to tax and investment experts, equity mutual funds are subject to market risk and hence it is important for an investor to know one's risk profile before making any mutual fund investment. Similarly, there is need for proper asset allocation, limited portfolio review frequency and discipline in investment. They asked mutual fund investors to remember that one thing good for others might not be good for them and hence there need for an investor to understand that there are some rules to follow before investing in equity mutual funds.
Speaking on the importance of risk profiling; SEBI registered tax and investment expert Jitendra Solanki said, "Risk profiling is the first and foremost step that an investor needs to follow before making any mutual fund investment related decision. It helps an investor know its risk appetite (high, moderate or low) because risk profiling involves various aspects like investment experience of the investor, investment goal and time horizon, family dynamics, etc." Solanki said that once an investor is aware about its risk appetite, then comes an important aspect of investment, which is called asset allocation.
Highlighting upon the importance of asset allocation in one's portfolio; Pankaj Mathpal, MD & CEO at Optima Money Managers said, "Equity mutual funds have various categories like small-cap, mid-cap, large-cap, mixed cap, etc. Once the investor is aware about one's risk appetite, he or she should look at asset allocation diversifying one's mutual fund investments in small-cap, mid-cap, large-cap, etc."
How to tweak your investment strategy during a market correction
Jitendra Solanki said that small-cap mutual funds become highly volatile in both bulls and bear case whereas large-cap funds witness least volatility. Hence, one can increase or decrease one's small-cap and large-cap exposure depending upon bull and bear ridden market.
Solanki also said that when the market corrects reasonably, then a mutual fund investor can increase one's exposure in small-cap and decrease one's exposure in large-cap funds and gain maximum when the market rebounds.
How to become crorepati from mutual funds investment
Pankaj Mathpal of Optima Money went on to add that there is 15 X 15 X 15 rule of mutual funds that suggests an equity mutual funds investment would yield 15 per cent if the time horizon is 15 years or more. He said that if an investor invests ₹15,000 for 15 years, then the mutual fund calculator suggests that one's maturity amount after 15 years would be around ₹1 crore. So, one can expect to become a crorepati investing ₹15,000 for 15 years in monthly SIP mode.
Mutual funds review tip
Echoing with Pankaj Mathpal's views; SEBI registered expert Jitendra Solanki added, "Discipline in investment and limited investment review frequency holds key once risk profiling and asset allocation is done."
Solanki said that it has been found that people review their portfolio every day (some time more than once in a day), which is unwanted. One should review one's portfolio twice or may be thrice in a year and keep investing in the mutual fund plans at regular intervals. While reviewing one's portfolio, he advised investors to look at whether the plan has generate alpha return or not. If it has generate alpha return, then one should continue with the plan without any hazzle.
