Many investors have turned to the DIY model of mutual fund investments. Some choose this path due to lack of proper financial advice and others because they are tired of all the hard selling by bank executives.
Apps like Cube Wealth have made it a lot easier for DIY investors to invest, track, and analyze their mutual fund investments.
Now that DIY investing has become the norm instead of the exception, let’s look at the top 10 lessons to keep in mind before investing in mutual funds yourself.
10 Things To Remember When Investing In Mutual Funds Yourself
1. Understand Your Risk Level
Your risk level determines how much money you can allocate to funds that are either aggressive, conservative or moderate. These are the 5 risk levels that investors usually fall under:
Knowing your risk tolerance is very important. But determining it on your own can be difficult since there are various factors to be considered like your net worth, age, goals, etc.
Taking the risk analysis quiz on the Cube Wealth app is one of the easiest ways to know your risk level. Here’s a snapshot of Cube’s Perfect Portfolio screen after you’ve taken your risk analysis test:
2. Go Beyond Star Ratings
As a DIY mutual fund investor, it would be easy to think that a mutual fund is good if it has a good CRISIL star rating. However, the star rating and historical performance alone are not indicative of future success.
There are 2 reasons for this. First, mutual funds are market-based investments. Two, a mutual fund that is right for other investors may not be right for you.
This is why it’s important to speak to a wealth coach before you invest. A wealth coach can help you evaluate your mutual fund investment options based on your preferences.
3. Work To Build A Perfect Portfolio
Most DIY investors know that mutual funds have the benefit of compounding. They also know that it is one of the best long term investments.
But here’s the common mistake: investors fail to realise that a mutual fund must satisfy their investment goals. This is where a perfect portfolio comes into the picture.
A perfect portfolio consists of various mutual funds, stock and other assets hand-picked to fulfil your investment goals for the short, medium and long term. It also has room for emergency funds and protection.
For example, Cube makes it easier to build a perfect portfolio based on the bucket philosophy:
4. Invest In A Disciplined Manner
Disciplined mutual fund investing principles have benefits regardless of whether you’re a DIY investor or not. As a disciplined DIY mutual fund investor, you must stick to a budget and invest based on facts and research.
One of the best ways to become disciplined is to invest in mutual funds via SIP. You can choose the frequency of the SIP investment and set it to weekly, monthly or quarterly.
5. Diversify On Your Own Or Consult A Wealth Coach
Distributing your wealth across various categories of mutual funds can help you minimize the risk and maximize your gains. Diversification also has an important benefit that is often overlooked. It can help you achieve your investment goals across time.
For example, liquid funds are short term investments that are good for parking your surplus cash. Equity funds, on the other hand, are long term investments that are known to do well over 5+ years.
If you have a diverse portfolio, you’ll have a better chance of leveraging the benefits of each fund type. But this would depend on your risk level and goals which a wealth coach can help you identify.
6. Track Your Investments
It’s important to do a periodical check on your mutual fund investments. Monitoring your investments monthly or quarterly can help you identify the heroes and the loss-makers.
The Cube Wealth app has a simple portfolio tracking feature. This is super helpful considering the jargon and the complicated graphs that are generally associated with finance.
7. Get A Regular Portfolio Analysis
Tracking your investments is necessary but not enough. DIY investors can benefit from getting a regular portfolio analysis done. It can help you rebalance or reorient your portfolio depending on market movements or the health of your investments.
After all, the value of your investment increases or decreases solely based on the fund’s performance.
The importance of good financial advice cannot be overstated. However, reliable financial advice is hard to come by in India.
Most investors bank on word of mouth information to buy or sell mutual funds. But this is due to a lack of access to quality financial advice available to regular investors.
However, Cube has fixed this bug by allowing Cube users to gain access to world-class wealth advisors who were only available to the rich in the past.
Wealth First, Cube’s mutual fund advisor, helps you invest in the best mutual funds with curated fund recommendations every month. To know more about this, download the Cube Wealth app.
9. Know When To Hold & Sell
Most DIY investors could be tempted to sell a fund during a bear or bull market phase. However, it’s not that straightforward. Ideally, there are several factors that should determine when you jump in or out of a mutual fund.
These factors can range from but are not limited to, the achievement of goals related to the fund, the long term prospect, etc. A wealth coach would be the best person to help you with this difficult decision. Cube’s Mutual Fund advisory partner Wealth First helps users make these decisions.
10. Be Patient
Patience is one of the keys to success when it comes to mutual fund investments. The Indian mutual fund market has shown promising returns over the long term with hints of short term fluctuations.
The 10 top lessons may help you become a better DIY mutual fund investor. However, you must go beyond the tips mentioned in this blog and contact a wealth coach for free to invest in mutual fund options that are right for you.
on stock picking, poring over excel sheets, financial news, analyzing market trends, tracking the Sensex, researching company fundamentals, comparing mutual funds, reading financial reports, trying to predict the future & losing your sanity!