Last Updated : Oct 07, 2018 02:48 PM IST | Source:

Investing in mutual funds? Answer these 5 questions first

Investors should ideally review their mutual fund portfolio at periodical intervals, at least once a year.

Navneet Dubey

Investing in mutual funds helps you make money but, how one should go about making money in reality, is critical to understand. Generally, investors are in a quandary while deciding on the fund to put their money in. Should I start an SIP of Rs X amount in an equity oriented scheme? Should I start an SIP of Rs X amount in equity oriented scheme for next Y number of years? Or, should I start an SIP of Rs X amount in equity oriented scheme for next Y number of years towards fulfilling my child’s education goal or buying a Car? Hence, the optimum investment required for achieving your financial goal will depend on its time horizon and your risk appetite. Therefore, to do financial planning in a true sense, it becomes very important to decide your financial goal first before making investments in mutual funds.

Here are five things you need to know about yourself before making investments in mutual funds.

What is my risk profile?


Before pooling your money in mutual funds, understand the amount of risk you can take. For example, investors with higher risk appetite might prefer riskier asset classes with higher upside potential to reach their goals sooner while those with low or moderate risk appetite would prefer to trade-off growth potential for capital protection and hence, require a higher contribution for achieving their goals.

Manish Kothari - Director & head of mutual funds, said that for financial goals with long-term horizon, even those with moderate or low risk appetite can go for equities and achieve their goals with lower investment. “The long term horizon would allow enough time for your equity investments to recover from the short-term volatility and beat the returns from safer asset classes,” he said.

Since the risk-taking capacity changes as per the increasing age, it becomes important to assess one’s risk profile from time to time.

How much can I invest?

When it comes to savings, you need to understand two things – first, how much you should save for investing and how much you would need for your specific goals. This can be done by finding the future monetary value of each of your financial goals after considering their time horizon and inflation rate. Once you have those future monetary value, take the help of SIP calculators to find out the monthly contributions required for achieving them.

Kunal Bajaj is CEO & founder of said that if you’re confused about how much to save and invest from your overall household expenses, just follow the 50–30–20 rule of thumb. “Spend 50% on necessities (rent, food, transport, education), another 30% on things you want or enjoy (“discretionary expenses”) and save the remaining 20% for the long term investments,” he said.

 What are my financial goals? 

While investing, you need to define your financial goals which may be retirement, child’s education, house purchase, etc. and accordingly, you should make the selection of scheme/s. This process is not as easy how it looks. Since, the goals are planned for a longer term, taking a decision on scheme selection requires a good analytical skill. Also, select the schemes as per your risk-taking appetite. Doing so may require you to shift your goals’ time horizon a little bit which in turn will help you in maintaining the consistency in your investment throughout the tenure. This happens because returns vary as per schemes to scheme and the category of funds they fall into.

How long can I invest consistently? 

When it comes to choosing a mutual fund scheme, investors look for the star-ratings, whereas others look for the top-performer observing the past five or three year’s performance trend. However, investors forget to analyse their own consistency that is how much longer they will be able to remain invested. Therefore, investors should first ignore the short-term performance or the long-term performance consistency but look out how they can remain invested in a particular once opted until the time achieving their financial goals successfully.

Ideally, investors should take a systematic investment plan strategy to route their money in mutual funds. This helps them get rupee-cost averaging benefit and power of compounding benefit when invested for a longer term for about 15-20 years.

When should I alter my portfolio?

Investors should ideally review their mutual fund portfolio at periodical intervals, at least once a year.

Kothari said that investors should identify the changes in their financial goals, risk appetite, funds’ fundamental attributes and macroeconomic factors, and re-balance their portfolio accordingly. The periodic review would also allow investors to identify under-performing funds and correct deviations from their original asset mix.

“Funds under-performing their benchmark indices and peer funds for 3-4 consecutive quarters can be considered as under-performing funds, and should be redeemed for better-performing ones,” he said.

Saving helps in making a better tomorrow and makes you financially secure. Therefore, while saving make sure that your money is headed in the right direction and if you are a novice investor, then you should take suggestions from a financial adviser.
First Published on May 31, 2018 11:00 am