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Last Updated : Apr 07, 2015 04:26 PM IST | Source: Moneycontrol.com

Thinking of investing in mutual funds? Take these 7 steps

Mutual fund investing makes money in long term. It is better to take SIP route after taking stock of your goals, risk profile and financial status

Rohit Shah

Equity markets have done well in last few quarters and hence there is a renewed interest from retail investors. Market behaviour cannot be controlled but one’s investing behaviour can certainly be managed to give optimum results. One should follow a methodology and focus on elements like available liquidity, goals, asset allocation and risk appetite, expertise, logistics and portfolio review.

What’s your investible surplus?


Revisit your cash flow and take a stock of the money that is available every month. Consider parking funds for annual expenses in liquid mutual funds. Keep a buffer for contingencies and if you are not sure, start with say 90% of the targeted surplus. You can take average surplus numbers and use the funds parked in liquid mutual funds to meet deficit, in the months with high expenses. Remember that money kept ideal in a saving bank account will earn you lesser than inflation.

Do you have a goal?

Think through with your family and get your money to the best use. Check for short term cash out flows for children’s education, down payment of home, annual vacation and the likes. Ensure that these are planned well and saved in Debt securities. The long term goals like Children’s education or retirement gap savings can be in instruments like Equity Mutual Funds (MFs) that can possibly generate substantial wealth in the long term. Experts believe that Goal based savings are one of the best forms of investing.

What’s your desired asset allocation & what about the risk appetite

The way we need to map savings to goals, similarly we also need to map the incremental investments to our desired asset allocation. What Oxygen is to human life, the same way Asset Allocation is to investments. Remember what the grand-father said decades ago, ‘don’t keep all your eggs in one basket’. One secret to build wealth is to consistently beat inflation and save taxes. That said, Equity Funds are not everyone’s cup of tea. So check your asset allocation and opt for suitable mutual funds in line with your risk appetite.

Do you have the expertise or would you need help?

With over 45 Mutual Fund (Asset Management) companies and 10,000+ schemes in India, it’s easy to get confused. There are various ways one can construct a portfolio to invest in mutual funds. Goals, risk appetite, duration, market situation, investible surplus are key considerations in building a portfolio.

ALSO READ: Five Myths About SIP That Can Stop You From Growing Rich

So decide if you need an experts help in managing your mutual funds. Based on the need and size of investments, various options from Do It Yourself (DIT) to online web based solutions to personalized services can be availed.

So how are you going to execute

Mutual Fund investments are a product that you are likely to need for rest of your life. It’s a very long term need so carefully setup your investments. You can use your Online de-mat, trading, bank accounts, use a web based or an offline distributor service and invest in regular plans or even approach the mutual fund (asset management) company and invest in direct plans. All options have their pros and cons so take some time and make an informed decision. Experts strongly recommend SIP approach for consistency, cost averaging and investment longevity.

Mere investing is no good. Take a stock once in a while

There are examples of investors having made decent profits in mutual funds and there are equal examples of investors having burnt their fingers. Buy and Hold does not work. The way you regularly review your projects at work, please also take a stock of how your mutual funds are doing, at least once in say six months. Churning is not a good idea and neither is good to sell your fund just because it did poor in last quarter. Objective of the review is to take a stock and keep a tab on key indicators of your funds. Market situations, goal maturity, portfolio profits, fund specific factors may need you to undertake re-balancing of the funds.

Take SIP route while investing in MF?

Even an amount of Rs. 500 a month is sufficient to start an Systematic Investment Plan (SIP) in a Mutual Fund. This is an easy, affordable and long term measure to build wealth. So invest for goals, keep in mind your risk appetite, target returns above inflation, choose tax saving vehicles, review regularly but stay patiently invested.

The author is a SEBI Registered Investment Advisor and has founded www.gettingyourich.com.

First Published on Apr 7, 2015 11:28 am