What are the things that you should keep in mind while investing in Mutual Funds?

When you are new to investing, it can seem a little overwhelming to pick the right Mutual Fund to suit your financial goals. First-time investors are taken in by factors that may have no bearing on the performance or value of the fund. Here’s a list of few points that you need to keep in mind when you invest in Mutual Funds.

  1. Don’t look at NAVs like stock prices
    New investors tend to get carried away by the proposition that a Mutual Fund which has a low net asset value (NAV) must be cheap to buy.
    The NAV of a fund is calculated as the total value of its holdings minus liabilities divided by the number of units held by investors. A Mutual Fund’s NAV is not like the price of a share, which is determined by market forces such as demand and supply and reflects the market’s opinion of the stock.
    Instead of looking at NAV, investors must compare funds by factors such as expense ratio, portfolio, the pedigree of fund manager and Mutual Fund house, ability to meet your financial goals, returns, risk, etc.
  2. Don’t buy a New Fund Offer for its NAV
    New Fund Offers or NFOs of Mutual Funds are usually priced at Rs 10. Investors are tempted by the low price. But, as explained in point 1, the price of a Mutual Fund is not a true reflection of its value as an investment. New funds usually have higher expenses than established funds and do not have a track record for you to evaluate.
    Invest in new funds if they offer you something unique or innovative – a new sector, a new index or a new style of investing that is in line with your goals.
  3. Don’t merely go by past performance
    Even though all Mutual Funds put up this disclaimer, new investors tend to ignore this advice. Looking at a Mutual Fund’s performance in isolation can be misleading. In a rising market, a Mutual Fund may have given exceptional returns, but it may still have underperformed its category.
    Compare the performance of a Mutual Fund against similar funds. Look at its performance in different market conditions.
  4. Don’t use Mutual Funds for speculation or trading
    Many investors use MFs to speculate or try to time the markets. They buy when markets are rising and try to sell when the markets fall. This is not a healthy way of investing in Mutual Funds. The best strategy is to invest regularly through systematic investment plans or SIPs. If you do this, you don’t the need to time the market, and you can ride out volatility with less risk.
  5. Don’t skip the details
    At the end of the day, there is no way around doing some deep diving yourself about the funds you invest in. Sit with your financial planner and press for information on the following parameters of the Mutual Funds or look it up yourself.
    • Quality and weight of stocks in the fund
    • Fund’s turnover rate
    • Expense ratio
    • Risk and return
    • Fund manager’s background, expertise, and track record
    • Credit quality in case of debt funds
  6. Don’t be without a plan
    This is true for all investments and not just Mutual Funds. You must have a financial plan that considers your short-term, medium-term and long-term financial goals. And your Mutual Fund investments must help you achieve them. If you are new to investing, consult a financial advisor to create a plan for yourself.
    If you wish to start your investment journey, you may start investing with HDFC securities. As an experienced investor, I can surely say they are the best in business.
    Visit this link to start: https://www.hdfcsec.com/mutual-fund-investment-online

Nice Infromation you have shared. Thank you

Investing in mutual funds is the best option for those who want to take advantage of capital market investing to create wealth. The earlier you start the better since you have chances of riding out equity market cycles to create wealth is high. The best advantage of Mutual funds is grabbed by long term investments in mutual funds. Young investors can take maximum benefits of investing money for a longer period in mutual funds.
Define a purpose before you start investing in mutual funds with a definite purpose. Start investment with goals like weeding, child education or future retirement. This will help you in making dedicated savings for long term financial goals.
There are two ways to invest yours in mutual funds. One you can invest in lump sum mode where you need to invest your money one time or second where you can invest your money on a monthly or quarterly basis (SIP) as per your choice.
As far as safety is concerned, mutual funds are considered as safe for investments. However, the investment made in any scheme is subjected to market risks. You should always read the scheme related documents properly before investing.


Good information for new investor in Mutual Funds.