Mutual fund investing is a journey, not a one-time effort

Building a financial plan and accordingly selecting a mutual fund scheme is just the first step in the investment journey. Striving for potential financial security with mutual funds is not a one-time process; it requires consistency, supervision, flexibility, and careful decision-making.

Read on to find out more about what goes into mutual fund planning and the importance of consistent investing and regular monitoring.

• Table of contents

1. Getting started
2. Monitoring and managing portfolios
3. FAQs

Getting started

When you invest in mutual funds, you pool your money with other investors. This money is then invested by asset management companies in a diversified basket of assets that can include stocks, bonds and other assets. Through diversification and the involvement of fund managers who are financial experts overseeing your portfolio, mutual funds help you potentially build wealth over time while mitigating risk.

The mutual fund planning and investing process begins when an investor decides to allocate a certain portion of his or her funds into one or more schemes. Selecting a scheme requires assessing one’s financial objectives and risk tolerance.

Your financial objectives are what you are investing money in. This could be for retirement, higher education, buying a home, financial security or to build wealth over time. It may vary from person to person, depending on financial situation, goals and other subjective factors. Risk tolerance is a measure of how comfortable you are with taking a risk. You may have a low tolerance – i.e, you are risk-averse – a moderate tolerance, or a high risk tolerance.

Based on these factors, you can decide which mutual fund category is right for you. For instance, conservative investors or those with a short or medium investment horizon may find debt funds to be more suitable. Investors who are comfortable with risk and have a relatively long investment horizon may prefer equity funds. 
Before selecting a scheme, it is important to do in-depth research and seek professional guidance. This would include evaluating various mutual fund options, looking at past returns and the fund manager’s experience, and aligning the fund’s risk level with your risk appetite.

Monitoring and managing portfolios

Once you have invested in one or more mutual funds, it is crucial to regularly monitor the performance of your portfolio. This helps you track how each fund is performing in comparison to its benchmark and its category peers. Consistent underperformance may be a concern and could signal the need to exit the fund.

Monitoring your mutual fund portfolio also helps you assess if the fund is helping you potentially reach your goals. It offers insight that can help you respond to changing market conditions, if required. However, seeking professional advice is important, especially when you’re considering major changes in your portfolio.

You may also need to rebalance your portfolio at regular intervals so that you can maintain your preferred asset allocation pattern based on your goals and risk appetite. Staying up-to-date with economic developments, market conditions and management changes in your fund’s asset management company is also important for making well-informed decisions.

Additionally, you may consider increasing or altering your investments if your financial position changes. Or, if you are close to reaching your goal, you may look to move your equity investments to relatively stable avenues, such as debt mutual funds.

You can also consult with your financial advisor, who can help you by providing personalized advice according to your specific needs and objectives. Staying informed is necessary so that you can make a well-informed decision that matches your financial goals.

Conclusion
Mutual fund planning requires commitment and regular oversight. You can navigate the complexities of the financial markets by investing consistently, monitoring your portfolio, staying informed, and working towards achieving your financial goals. Mutual fund investment planning is not a one-time effort but a continuous process that changes according to the circumstances and market conditions. It is crucial to stay focused on your financial goals, maintain discipline in your approach, and have a long-term view of your investments.

FAQs

What is the difference between a mutual fund and an ETF?
The main difference between mutual funds and exchange-traded funds (ETFs) is that mutual funds are priced once a day, at the end of the trading day, while ETFs trade on an exchange throughout the day like stocks. Also, there are different types of mutual funds, many of which are actively managed, whereas ETFs typically track a specific index passively.

Can I lose money investing in mutual funds?
Yes, investing in mutual funds carries risks linked to market volatility, among other factors. Therefore, capital protection and returns are not guaranteed. However, choosing the right scheme as per your investment horizon and risk threshold can make it easier to navigate market volatility. Diversification can also mitigate risk by spreading your investments across various asset classes.

How do mutual fund fees impact my overall returns?
Expense ratios and other mutual fund fees eat into your total returns. Therefore, it is important to consider these when evaluating mutual fund options.

Are there any risks associated with investing in mutual funds?
Yes, investing in mutual funds involves inherent risks. It's essential to understand your risk tolerance and investment objectives before investing and diversifying your portfolio so that you can manage risk effectively.

How do I know if a mutual fund is performing well?
You can assess a mutual fund's performance by comparing its returns to its benchmark index and peers over various periods. Keep in mind that past performance is not indicative of future results, so it's essential to conduct thorough research before making investment decisions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.