More and more women are actively managing businesses and becoming financially independent. Here are a few mutual fund investment tips that every prospective investor must be aware of.
Recognise, prioritise your financial objectives
Before you begin to invest in mutual funds, recognise and prioritise your goals. To ensure better direction and success for your mutual fund investments, try to link your investments to specific financial goals. For a woman, financial objectives may vary basis her age, marital status, number of dependents, financial situation, etc. For instance, for an unmarried woman it might be more important to create a corpus for her wedding. On the other hand, for a mother, investing for her child’s higher studies would be a priority.
Avoid choosing a fund based on the NAV
NAV stands for net asset value. It refers to the fund’s market value on any particular day. While choosing a mutual fund, investors get carried away by lowNAVs, as it is cheaper than mutual funds that are priced at higher NAV. NAV is irectly proportional to the AUM (asset under management) and the total units of the fund. For example, if you invest Rs 5,000 in two different funds with NAV of Rs 10 (A) and `50 (B) respectively. The different NAV values imply that you hold 500 units of A and 100 units of B, total value being the same, i.e. Rs 5,000. So, whether the NAV is high or low is only an indicator of the number of units an individual would hold and not the performance of the fund. Instead, look at the returns of the fund over different time periods and then compare it to the benchmark and their peers.
Choose the mode of investment
You can invest in mutual funds either via SIP way, i.e. Systematic Investment Plan, or the lumpsum mode. Both investment modes have their own sets of pros and cons. An SIP investment helps to invest an insignificant amount in regular funds. On the other hand, a lumpsum in mutual funds means you invest the entire investment amount in one go. Choose the one that suits your profile.
Review your portfolio regularly
Your financial portfolio is a roadmap to achieve your financial objectives. Make sure to review them regularly and make necessary changes if your goals change along the way. You might consider redeeming your investments for better performing mutual funds if they have been constantly under-performing for a long time.
Realise the importance of investing and begin your investment journey as soon as possible. You can also take the services of a financial advisor to guide you on your investment journey.
Recognise, prioritise your financial objectives
Before you begin to invest in mutual funds, recognise and prioritise your goals. To ensure better direction and success for your mutual fund investments, try to link your investments to specific financial goals. For a woman, financial objectives may vary basis her age, marital status, number of dependents, financial situation, etc. For instance, for an unmarried woman it might be more important to create a corpus for her wedding. On the other hand, for a mother, investing for her child’s higher studies would be a priority.
Avoid choosing a fund based on the NAV
NAV stands for net asset value. It refers to the fund’s market value on any particular day. While choosing a mutual fund, investors get carried away by lowNAVs, as it is cheaper than mutual funds that are priced at higher NAV. NAV is irectly proportional to the AUM (asset under management) and the total units of the fund. For example, if you invest Rs 5,000 in two different funds with NAV of Rs 10 (A) and `50 (B) respectively. The different NAV values imply that you hold 500 units of A and 100 units of B, total value being the same, i.e. Rs 5,000. So, whether the NAV is high or low is only an indicator of the number of units an individual would hold and not the performance of the fund. Instead, look at the returns of the fund over different time periods and then compare it to the benchmark and their peers.
Choose the mode of investment
You can invest in mutual funds either via SIP way, i.e. Systematic Investment Plan, or the lumpsum mode. Both investment modes have their own sets of pros and cons. An SIP investment helps to invest an insignificant amount in regular funds. On the other hand, a lumpsum in mutual funds means you invest the entire investment amount in one go. Choose the one that suits your profile.
Review your portfolio regularly
Your financial portfolio is a roadmap to achieve your financial objectives. Make sure to review them regularly and make necessary changes if your goals change along the way. You might consider redeeming your investments for better performing mutual funds if they have been constantly under-performing for a long time.
Realise the importance of investing and begin your investment journey as soon as possible. You can also take the services of a financial advisor to guide you on your investment journey.
For youngsters, who have just started their earnings, investments generally take a backseat as they prefer to spend more on enjoyment. For those who want to start investing, where to invest is always a dilemma.
While one of the factors that motivates new investors is tax saving, investing to fulfill life goals would require investments beyond the fixed-income tax-saving instruments.
Equity
As new investors have a long working life to invest, equity is an ideal option for them to generate higher returns in the long term. Moreover, post-lockdown the revival of economic activities has resulted in a market rally that pushed the Sensex above 50,000 level.
New investors should consider being overweight on equities as an asset class. Currently, we are in an economic recovery and earnings upgrade cycle, which is finding strong policy support and in such an environment, equities tend to outperform other asset classes. We would suggest 60 per cent allocation to Large-cap and 40 per cent to Small- and Mid-cap. We believe there are still some value plays to be found in the Small- and Mid-cap space even though the market has rallied.
Debt
Apart from equity, it is also essential to allocate some assets in debt to take advantage of market fluctuations and maximise return in the long term. If a new investor wants to invest in debt we would recommend taking exposure in MFs and papers in 5-7 years maturity segment or invest in AA or A (strong balance sheet) papers up to 35 per cent of the portfolio. Avoid short term papers from a medium-term investment perspective.
Portfolio Rebalancing
After allocating assets in debt and equity in a fixed proportion, it is also necessary to review the portfolio periodically and rebalance the portfolio to restore the debt-equity ratio once it gets skewed. Following the basic principles of asset allocation and regularly rebalancing the portfolio remains essential, hence we suggest that existing investors should follow the same principles as given above and rebalance their portfolio to that effect.
Sectors to focus on
For the investors investing in individual stocks or sectoral funds, it’s essential to focus on the right sector to maximise returns. In terms of sectors, Financials and Healthcare are better placed at the moment. Given the rapidly evolving Indian consumer spend and discretionary consumption, Consumer and Consumer-Tech also show promise for a long-term investor.
Key strategies
1.With low-interest rates, investors need to have at least 25 per cent exposure to equity for better returns.
2.For Fixed income allocation, AAA and G-sec in the 5 to 7-year segment look attractive. These can be played through dynamic bond funds or Debt MFs having underlying papers in the 5 to 7-year segment. Avoid shorter maturity space if investing with a medium-term horizon in mind.
3.For tax efficiency, investors could look at AA and A papers (with a good balance sheet) in the form of MLDs. MLDs also help to lock in returns for a defined time period and give higher yields.
Strategy for salaried investors
Talking on how should the salaried investors, having regular income should invest, Salaried individuals can opt for either (a) staggered investments with buy on dips strategy or (b) could also consider SIPs (Systematic Investment Plans) or STPs (Systematic Transfer Plans).”
While one of the factors that motivates new investors is tax saving, investing to fulfill life goals would require investments beyond the fixed-income tax-saving instruments.
Equity
As new investors have a long working life to invest, equity is an ideal option for them to generate higher returns in the long term. Moreover, post-lockdown the revival of economic activities has resulted in a market rally that pushed the Sensex above 50,000 level.
New investors should consider being overweight on equities as an asset class. Currently, we are in an economic recovery and earnings upgrade cycle, which is finding strong policy support and in such an environment, equities tend to outperform other asset classes. We would suggest 60 per cent allocation to Large-cap and 40 per cent to Small- and Mid-cap. We believe there are still some value plays to be found in the Small- and Mid-cap space even though the market has rallied.
Debt
Apart from equity, it is also essential to allocate some assets in debt to take advantage of market fluctuations and maximise return in the long term. If a new investor wants to invest in debt we would recommend taking exposure in MFs and papers in 5-7 years maturity segment or invest in AA or A (strong balance sheet) papers up to 35 per cent of the portfolio. Avoid short term papers from a medium-term investment perspective.
Portfolio Rebalancing
After allocating assets in debt and equity in a fixed proportion, it is also necessary to review the portfolio periodically and rebalance the portfolio to restore the debt-equity ratio once it gets skewed. Following the basic principles of asset allocation and regularly rebalancing the portfolio remains essential, hence we suggest that existing investors should follow the same principles as given above and rebalance their portfolio to that effect.
Sectors to focus on
For the investors investing in individual stocks or sectoral funds, it’s essential to focus on the right sector to maximise returns. In terms of sectors, Financials and Healthcare are better placed at the moment. Given the rapidly evolving Indian consumer spend and discretionary consumption, Consumer and Consumer-Tech also show promise for a long-term investor.
Key strategies
1.With low-interest rates, investors need to have at least 25 per cent exposure to equity for better returns.
2.For Fixed income allocation, AAA and G-sec in the 5 to 7-year segment look attractive. These can be played through dynamic bond funds or Debt MFs having underlying papers in the 5 to 7-year segment. Avoid shorter maturity space if investing with a medium-term horizon in mind.
3.For tax efficiency, investors could look at AA and A papers (with a good balance sheet) in the form of MLDs. MLDs also help to lock in returns for a defined time period and give higher yields.
Strategy for salaried investors
Talking on how should the salaried investors, having regular income should invest, Salaried individuals can opt for either (a) staggered investments with buy on dips strategy or (b) could also consider SIPs (Systematic Investment Plans) or STPs (Systematic Transfer Plans).”
If you are new to mutual funds and want to invest in a fund, then you should go for a scheme based on your investment objectives and risk tolerance. Depending on your convenience, you can invest in a mutual fund offline.
Investing offline in a direct mutual fund scheme can be done by visiting the branch of the fund house, or in a regular plan through a mutual fund agent/distributor. You can get your KYC completed at a KYC Registration Agency (KRA) before investing in mutual funds.
Most suggested by industry experts is investing in mutual fund schemes through a systematic investment plan (SIP), the best option for beginners. Through the SIP method of investing in a mutual fund, you will be able to invest a fixed amount regularly in a mutual fund scheme of your choice. You can invest as low as Rs 500 per month through the SIP in any mutual fund scheme.
Investing in mutual funds through Demat account
You can also invest in mutual funds through a Demat account through any depository participant or with your stockbroker. With a Demat account, the mutual fund units are held in the dematerialised form, which can be bought or sold through the Demat account just like shares. The Demat account can hold stocks, mutual funds along with other securities.
With a Demat and trading account, you can buy and sell units of mutual fund schemes. However, note that there are charges which are higher as compared to other modes of investing in mutual funds.
Investing offline in a direct mutual fund scheme can be done by visiting the branch of the fund house, or in a regular plan through a mutual fund agent/distributor. You can get your KYC completed at a KYC Registration Agency (KRA) before investing in mutual funds.
Most suggested by industry experts is investing in mutual fund schemes through a systematic investment plan (SIP), the best option for beginners. Through the SIP method of investing in a mutual fund, you will be able to invest a fixed amount regularly in a mutual fund scheme of your choice. You can invest as low as Rs 500 per month through the SIP in any mutual fund scheme.
Investing in mutual funds through Demat account
You can also invest in mutual funds through a Demat account through any depository participant or with your stockbroker. With a Demat account, the mutual fund units are held in the dematerialised form, which can be bought or sold through the Demat account just like shares. The Demat account can hold stocks, mutual funds along with other securities.
With a Demat and trading account, you can buy and sell units of mutual fund schemes. However, note that there are charges which are higher as compared to other modes of investing in mutual funds.
At a time when equity is at all-time highs and debt yields at lows, investors should look at a low-risk way of investing. A rebalancing will help an investor bring the portfolio to the original asset mix and average the investment cost.
So, given the elevated index levels and stretched valuations investors should look at ways to protect the downside to their portfolio in case of any short-term market correction.
Stay with asset allocation
With the markets rising, the proportion of equity in the portfolio would have increased for most investors. In such a case, it is better to relook at the portfolio and gradually reduce the overall allocation to equities. This will help to reduce risk in the portfolio. An asset rebalancing by selling some equity portfolio and investing the amount in debt can help in the long run.
As different asset classes move in different directions, investors must review their asset allocation at regular intervals. As different asset classes have varying cycles of performance, a good asset allocation plan can help an individual reach his financial objectives with the degree of risk that he finds comfortable.
In asset allocation, the decision to add more to equities or exit from equities should depend on factors such as tolerance to risk and long-term goals. Ideally, investors must increase the portfolio of high dividend paying stocks as one can earn steady dividend income in the long-term. Rising dividend pay-out ratio over a long period of time can be a good income source after retirement.
Invest in a staggered manner through systematic investment plans (SIP) as they allow an investor to buy units on a given date each month. The biggest advantage of an SIP is that the investor does not have to time the market.
Look at multi-asset funds
In the current scenario, multi-asset funds of mutual funds can be a good option for asset allocation mix as they invest in a combination of equity, debt and gold exchange traded fun=-0987654321ds. These funds have an equity allocation of around 65% and the rest in debt and gold. The fund manager does the reallocation of the asset mix depending on market volatility and returns. As a result, higher returns from a particular asset class can offset the poor returns from the other class. The fund house does the rebalancing and helps the investor to hold a diversified portfolio.
Go for index funds
Instead of investing in direct stocks, one can look at index funds which will have stocks of market leaders across different sectors and the fund managers’ intervention is very limited. Individual investors who are not market savvy should stick to index funds for convenience, liquidity and ease of investing. Ideally, an investor should look at an index fund that tracks a broad market index rather than funds that track a sector or a theme. As the expense ratio of index funds is lower (10 to 50 basis points) than other actively managed funds of asset management companies, returns generated can be higher in the long run.
So, given the elevated index levels and stretched valuations investors should look at ways to protect the downside to their portfolio in case of any short-term market correction.
Stay with asset allocation
With the markets rising, the proportion of equity in the portfolio would have increased for most investors. In such a case, it is better to relook at the portfolio and gradually reduce the overall allocation to equities. This will help to reduce risk in the portfolio. An asset rebalancing by selling some equity portfolio and investing the amount in debt can help in the long run.
As different asset classes move in different directions, investors must review their asset allocation at regular intervals. As different asset classes have varying cycles of performance, a good asset allocation plan can help an individual reach his financial objectives with the degree of risk that he finds comfortable.
In asset allocation, the decision to add more to equities or exit from equities should depend on factors such as tolerance to risk and long-term goals. Ideally, investors must increase the portfolio of high dividend paying stocks as one can earn steady dividend income in the long-term. Rising dividend pay-out ratio over a long period of time can be a good income source after retirement.
Invest in a staggered manner through systematic investment plans (SIP) as they allow an investor to buy units on a given date each month. The biggest advantage of an SIP is that the investor does not have to time the market.
Look at multi-asset funds
In the current scenario, multi-asset funds of mutual funds can be a good option for asset allocation mix as they invest in a combination of equity, debt and gold exchange traded fun=-0987654321ds. These funds have an equity allocation of around 65% and the rest in debt and gold. The fund manager does the reallocation of the asset mix depending on market volatility and returns. As a result, higher returns from a particular asset class can offset the poor returns from the other class. The fund house does the rebalancing and helps the investor to hold a diversified portfolio.
Go for index funds
Instead of investing in direct stocks, one can look at index funds which will have stocks of market leaders across different sectors and the fund managers’ intervention is very limited. Individual investors who are not market savvy should stick to index funds for convenience, liquidity and ease of investing. Ideally, an investor should look at an index fund that tracks a broad market index rather than funds that track a sector or a theme. As the expense ratio of index funds is lower (10 to 50 basis points) than other actively managed funds of asset management companies, returns generated can be higher in the long run.