In today’s modern times, everyone wants to earn maximum money as quickly as possible. But many times people make such mistakes due to which all their money is lost. Due to which those people get frustrated and become upset.
During the Corona period, there has been a lot of understanding among people about the stock market and mutual funds. Due to the low rate of return in FD, many people are now turning towards the stock market and investing their money in mutual funds or equity stock market with risk.
This is a good sign, but for the last few years new people are investing in mutual funds and also taking part in financial equities in a big way. But due to lack of proper knowledge of mutual funds, many investors have to lose their hard earned money.
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Today mutual funds are fast emerging as an investment option. But before investing in mutual funds, investors must pay attention to some things. Today we will tell you 6 such main things keeping in mind that you can avoid the risk of mutual funds. So let’s know which 6 things can save you from the risk of mutual funds.
1. View investment time frame
If you are going to invest in mutual funds for the first time, first of all, it is important to decide your goal and time frame. If an investor wants to invest money for 3 years, then he should stay away from midcap and smallcap. If you want to invest for 4 years, then you can invest in midcaps because midcaps give more returns than largecaps.
Investing in mutual funds proves to be beneficial only in the long term, not in the short term. Seven to ten years have to be given for the right returns. While evaluating a mutual fund, it is difficult to track the performance of that fund vis-a-vis its benchmark. If any mutual fund scheme is not outperforming its benchmark in 3,5 or 7 years then one should stay away from such scheme.
2. Check Expense and Sharp Ratio
An investor investing in mutual funds for the first time should stay away from such mutual fund schemes, whose expense ratio is more than 2 percent. An ideal expense ratio can be from 1.2 to 8 percent.
Expense ratio means how much an AMC spends to run a mutual fund scheme. The burden of expense ratio falls on the investor only. On the other hand, check the Sharpe ratio in mutual funds. It is used to evaluate the risk performance of a mutual fund.
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This ratio shows that how much return can be received by investing money in a scheme and how much is the risk. Choosing a fund with high sharpe ratio can be the right decision. Keeping this in mind, you can avoid future risks.
3. Do not choose only for the previous return
Often people, before investing in any company’s mutual fund, estimate its future returns only after seeing its past returns and invest their money. This is the biggest mistake of new investors. Looking at the past returns, it is difficult to predict which fund will perform in future.
Apart from this, entry in the market at the right time is also an important aspect. Experts believe that if the investor has prior experience of the market, then he remains in mutual funds for a long time. It is necessary for new investors to initially invest in funds of established companies.
Look through their portfolio and then decide to invest. Gradually increase investment in mutual funds. That’s why you should choose the mutual fund only after getting the correct information about the return.
4. Make strategy by looking at the current situation of the stock market
Before investing in mutual funds under the stock market, you should invest in large cap funds. Instead of large caps, investing in mid-caps and small caps should be avoided as they are badly affected by market fluctuations.
If an investor wants to invest Rs 10,000 in mutual funds through SIP as of today, then he should choose an index fund, a flexi cap fund and a value fund so that the investor can get the benefit of diversification.
5. Do not invest in haste
Many new investors choose such schemes which they think is very good. Then ask everyone around you whether they have chosen the right mutual fund for investment. This is a big mistake. If you want to sell a scheme that is not right for you, you may have to pay exit load and capital gains tax.
If you are selling your schemes immediately after buying them, it can reduce your capital. This is the reason why many new investors choose such schemes. whom they consider very good. This is the reason why homework should be done properly before investing.
So you first find out why you are investing? Then find out how much time you have with your hand. Third, find out how much risk you are willing to take. By knowing the answers to these questions, you will know the facts which will help you in investing.
6. Avoid investing in too many schemes
Often, looking at the benefits of mutual funds, new investors invest in more and more mutual fund companies. But this can prove to be your big mistake. Hence choose one or two schemes that suit your risk profile to meet your long term financial goals.
Too many schemes and categories in a mutual fund portfolio often end up reducing your returns. You can also take the advice of consultants for this. One should invest directly only when he/she has good knowledge about investing in mutual funds.
Before investing in any mutual fund, it is also necessary to pay attention to the entry and exit load, expected growth of the fund and volatility. The most important thing before investing anywhere, read its documents properly.
