Making your first Mutual Fund Investment? Mantras to Get Success

By on October 23, 2017
Mutual Fund Investment

For beginners, choosing the best mutual fund investment is not about finding the best performing scheme of a day, but it about being a wise and a thoughtful investor. Let’s compare the investment appetite of two individuals to understand this better.

It was the first time of Rakesh to invest in mutual funds. He was an over-enthusiastic investor as he invested in ‘get-rich-quick schemes’, remained impatient, invested speedily without analysis, chased only high performers without looking at their history, and was over-optimistic about his returns.

While another beginner, Umesh, carefully analysed the scheme, invested for long-term, remained patient, was not lured by high-performers and diversified his portfolio according to his risk-appetite.

It is needless to guess, who was the successful investor! Yes, Umesh was the winner as he adhered to some well-known mutual fund success mantras.

Following the right investment path is absolutely essential in mutual funds to remain in the game for a longer time. Umesh exactly did this and emerged as a winner as opposed to Rakesh.

If it’s your first time in mutual fund investments then the following ten mantras are the way to go forward:

1) Know your risk appetite

Beginners in mutual funds should understand that every mutual fund scheme differs according to the risk factor. One must choose a scheme that matches their own risk appetite. For example; equity funds have the highest risk; liquid funds carry the least. For beginners who have a low-risk appetite, investment in large-cap funds, debt funds and balanced funds is advisable. If you are a high-risk investor, large-cap and mid-cap funds are for you.

2) Make goal-oriented investments

If it’s your first time in mutual funds investment, know your goals and tie your investments to it. Your investment should be timed according to your goals, and hence it is essential to carefully go through the offer documents of the schemes to know all the terms and policies, objectives of the scheme, past performance and the time horizon. Equity-based funds are usually long-term and hence can be the useful ones.

3) Make SIP investments

SIP (Systematic Investment Plan) can be your way to start mutual fund investments as a small investment of Rs 500 per month for 20 years can turn to Rs 5 Lakh assuming a 12% annualised return. You just need to invest a small amount every month to get more substantial returns after some years.

4) Diversify your investment

There are different types of mutual funds like large-cap, mid-cap, small-cap equity funds, commodity-related funds, global fund of funds, index funds, sectoral funds etc. Hence, a naive investor can choose amongst these funds to invest.

5) Do not let NAV confuse you

In mutual funds, NAV (Net Asset Value) is calculated as,

NAV = (Value of Assets-Value of Liabilities)/number of units outstanding

Thus, NAV does not suggest anything about the quality or performance of the scheme, but it simply gives the fund’s value that an investor will be entitled to at the time of withdrawal of investment.

Beginners have to understand that a scheme with NAV of 15 might be better than a scheme with NAV 50. It all depends on the scheme’s performance and not the NAV value.

6) Do not try to time the market

‘Buy at low and sell at high’, is the investment mantra we all know. But first-timers should not be over-confident and time the high and low levels of the market. Analysing such levels is quite difficult and definitely not for the beginners.

Hence, for a successful mutual fund investment, it is advisable to invest early and stay invested so that your investment has enough time to grow through compounding.

7) Invest in balanced funds and index funds

In equity-based funds, balance funds lend some amount of cushioning as they are ideal for meeting challenges like inflation, interest rates, market volatility and so on. Beginners can also look out for index funds as cost-effective mutual funds as they help to mitigate fund house and fund manager related risks.

8) Invest in long-term mutual funds

Mutual funds tend to perform better in the long run of over 10 years, and hence beginners can go for such funds. If you invest your money in mutual funds which you don’t need for the next 8-10 years, you can get better-annualised returns as compared to short-term funds.

9) Do not let the dividends lure you

Once a mutual fund investment scheme pays out a dividend, its NAV reduces accordingly and hence do not get tempted by such schemes who declare dividends regularly. Invest in growth plans and not dividend plans as dividends are paid from your own holdings.

10) Monitor regularly

If you want to make a successful mutual fund investment, one of the most critical aspects is to monitor the investment and examine its performance. Know if the performance is according to the fund’s objective as stated in the scheme. Periodic monitoring of your mutual fund investment will allow you to take corrective actions and stay on track.

Some tips to remember:

The above mentioned ten mantras should be definitely considered before you plan your mutual fund investment.

  • Knowing the right strategy and the path ahead will save you during the market fluctuations
  • Having a clearly defined ‘Asset Allocation Strategy’ will help you plan your portfolio
  • Take advantage of internet and educate and familiarize yourself with mutual fund investing concepts
  • Understand the basic mechanics behind mutual funds
  • Understand the clauses and the fees involved before committing to a scheme


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