Over the past decade, there has been a rapid rise in interest when it comes to investing in mutual funds. Some of this can be attributed to the diversification it offers along with the option of liquidity and of course, the higher potential returns! Add to that the fact that no penalty is imposed besides a small exit load if mutual funds are sold and it puts deposits to shame. The most important thing when investing in mutual funds, however, is to ensure you purchase quality mutual funds!
Before we get into how you can invest in quality mutual funds let’s consider the options at hand. Mutual Funds are also primarily divided into debt funds, money market funds and equity funds. However, it can be a complicated and difficult process to make the right choice due to the sheer number of options available. It is important to be aware that a fund may be of poor quality. If a fund incurs high expense ratios, has hidden load charges or diluted returns it can do more harm than good!
This blog aims to help you make the right decision and invest in quality funds.
How To Pick/Choose Quality Mutual Funds
When deciding on mutual funds to invest in, it is important to ensure that it has the potential to provide good returns besides being ideal for your risk level and financial goals. Investing in funds with little to no research is perhaps the biggest mistakes you can make as an investor.
Here are a few things you can do to ensure you choose the best mutual funds for your financial needs:
1. Go Beyond Star Ratings
A mutual fund rating is a complex measure of the fund’s history, of its return and risk. It gives the investor an image of what the fund’s returns could look like. However, it is a common misconception that a 5 star rated fund always performs better than a fund with 3 stars. It is also important to keep in mind that the highest-rated funds at the moment may not suit your needs currently or in the future. These ratings are often dynamic and are subject to change at any given time.
Hence, it is not advisable to use the fund ratings as the sole criterion for your search and should be considered alongside parameters such as fund expense, the consistency as well as fund house pedigree.
2. Consult An Expert Financial Advisor
As market instability rises and the number of schemes, investments and options offered increases, it is easy for investors to feel overwhelmed. An expert financial advisor analyses their client’s portfolio and can guide investors through asset allocation, invest in products and help an investor choose products when they have an under diversified or over the diversified portfolio.
3. Invest For A Perfect Portfolio
A mutual fund portfolio allows you to keep track of and manage the investments you have made. Cube allows you to do this with ease; no complex dashboards or graphs, only showing you what’s relevant. Your total returns are dependent on your overall portfolio and not a certain fund that you have invested in.
4. Think Of Your Short, Medium & Long Term Goals
Investing in mutual funds is typically a mid-long term haul, the period you pick should line-up with your monetary objectives so that assets are accessible not long before the desired event. For example, if you plan on purchasing a car in 2-3 years, investing in the mutual fund for the same period will allow you to be close to self-sufficient for when the time arises.
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How To Get Quality Investment Advice
Quality investment advice can help you avoid mistakes, accurately evaluate the right investment options, reach your financial goals and ultimately, create wealth in the future.
1. Get A Wealth Coach
Hiring a wealth coach could bring clarity to an investor’s decisions by working through apparent mistakes before inaccurate decisions cost them money. You can speak to aCube wealth coach today for free if you need help investing in mutual funds, stocks, gold or even alternative assets like P2P Loans.
2. Consult Trusted Wealth Advisors
Wealth advisors guide you through the process of deciding where to invest your money based on thorough research and analysis. Our mutual fund advisor, Wealth First has decades worth of experience of picking the best mutual funds for investors. This is why the Cube Wealth app shows only a small set of options for mutual funds - we only show the best options.
3. Think Long Term
An outlook on the future with a focus on long-term investment can amplify profits for almost any investor. Avoid the “Get rich quick” scams and accept that wealth creation takes time. Stay consistent by investing regularly so that compound interest and rupee-cost-averaging can work their magic for you.
4. Invest Based On Research
It’s important to do your own research before investing your money into a fund. An easy place to start is by reviewing the company’s quantitative data such as financial reports. You can also find out about the company’s qualitative data by asking questions like:
‘How does the company make money?’
‘Does this company have a competitive advantage?’
‘What could go wrong?’
If you’re a busy professional who would rather have an expert do this research for them. Download the Cube Wealth app. Even our free version shows you assets that have been picked by our expert advisors.
How To Know When To Sell Mutual Funds
It is ideal to retrieve your money by selling your funds only when you deem it a necessity. If it has invested in a certain fund for the long-term stay the course. If you invested in a short term fund and the time has come to reap what you sowed then you may sell. Given below are some scenarios when it will make sense to sell your funds:
1. After Investment Objectives Have Been Met
An investor could sell their fund once they have achieved their financial goals or if their Wealth Coach or financial advisor has recommended that they exit an investment.
2. When A Fund Is Producing Lower Returns
It could be tempting to sell your fund and invest your money elsewhere. However, you shouldn't leave the fund if it fails to meet expectations for the time being. Even good funds can face temporary setbacks for decades. One should stay invested and consider waiting for recovery unless advised otherwise by a financial advisor or Wealth Coach.
3. Change In Investment Objective
You might need to leave your fund on the off chance that it changes its initial objective. For example, if you put resources into a multi-cap fund which is now working as a mid-cap fund, consider leaving the fund unless you are comfortable with the additional risk this involves.
Not much of a reader? Watch this to know when to sell a mutual fund
Remember This When Selling A Mutual Fund
When deciding to sell a mutual fund, it is important to keep the exit load and tax on profits in mind. Mutual fund schemes often charge an exit load based on when you sell; you must keep this in mind. You would also be subject to capital gains tax when redeeming profits.
The Best Way To Sell
All things said and done, most of us understand the markets very little to make our own choices. If you really respect your money, ensure you consult a wealth coach or financial advisor who does this for a living. He or she will be in a far better position to help you decide what to sell when to sell, what to hold and what to buy next.
You wouldn’t go to a dentist for an open heart surgery. You would go to a specialist - a heart surgeon. Extend the same courtesy to your money, consult a wealth coach instead of asking your friends, family & colleagues for their often uninformed or ill-informed opinion.
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!