3 Expert Tips for Investing in Mutual Funds | Maximizing Your Mutual Fund Investments
Investing in mutual funds can be a fantastic way to grow your wealth and achieve your financial goals. However, if you’re new to the world of mutual funds, it can be quite overwhelming. One of the big challenges that you will face in picking a mutual fund is the surfeit of choice available. Just look at the numbers. With over 40 AMCs, over 1,400 funds and more than 3,000 schemes on offer, you are truly spoilt for choice. That’s why we’ve put together 3 Expert Tips for Investing in Mutual Funds to help you navigate the world of mutual fund investing like a pro.
3 Expert Tips for Investing in Mutual Funds | Maximizing Your Mutual Fund Investments
Tip 1 : Keep Your Investment Objectives Clear
An investor should keep their investment objectives clear before heading towards investing in mutual funds.Mutual funds are known as flexible financial products, which an investor can start today just by investing with RS 500.Apart from ELSS schemes and closed-ended funds, an investor can invest in any mutual funds and redeem at any time as per their choice. This allows investors to select their desired mutual funds by keeping in mind their investment objective.For example:If an investor is looking to save money on income tax and wants to stay invested for a long period, ELSS is the perfect and ideal investment for them.On the other hand, if they want to invest their money for the short term and want to maintain a good level of liquidity by receiving higher returns, a short term debt fund or a liquid fund is the right option for their investment.
Tip 2 : Not just returns but consistency of returns that also matters
A fund that consistently outperforms its peers can be a great choice for long-term investors. However, keep in mind that it’s not just about finding the fund with the highest returns, but also one that has a history of delivering those returns consistently. Funds that swing wildly from one extreme to another can be risky and may not be suitable for investors who prefer a more stable investment.After all, the whole point of investing is to grow your money over time, and you want to be confident that the funds you choose will deliver steady, reliable returns.
Tip 3 : Sharpen Your Strategy With Risk-Adjusted Returns and Ratios
When evaluating mutual funds, it’s crucial to look beyond just the returns and consider the level of risk that the fund has taken on. A fund that generates 14% returns with only 10% volatility may be a better choice than a fund that delivers 16% returns with 40% volatility. In terms of risk-adjusted returns, the first fund would likely be the better choice. You can measure risk-adjusted returns using Sharpe and Treynor ratios ( Learn more about it here https://www.investopedia.com/ask/answers/010815/what-difference-between-sharpe-ratio-and-traynor-ratio ) , which help you evaluate the level of risk that a fund has taken on compared to its returns. These ratios take into account both the returns and the level of risk involved in generating those returns, providing a more complete picture of a fund’s performance.
Final Takeaway | 3 Expert Tips for Investing in Mutual Funds
Mutual Fund is a new-age investment option which suits the investment needs of different types of investors. Known for their high return yielding capability, this market linked instrument comes in various shapes and sizes. No matter what your financial goals are, including at least one fund in your portfolio can help you realize the desired investment returns. With these 3 Expert Tips for Investing in Mutual Funds you select the right funds to increase your savings for a more extended period.
Read also : Capital Asset Pricing Model (CAPM) | Understanding Risk & Reward In The Stock Market https://thebrightdelights.com/capital-asset-pricing-model-capm-understanding-risk-reward-in-the-stock-market/