Mutual funds are known to provide the most optimum way for retail investors to partake and profit from the uptrends in equity markets. There are different types of mutual funds available to cater to varying needs of investors. Those schemes that have a higher allocation to equities are believed to be suited for long-term goals, while those with higher allocation to debt are meant to serve short-to-medium term goals. Equities have a higher potential to generate significant returns that any other asset classes when invested for a long time. Hence, investors with an investment horizon of 10 years or more might consider investing in equity mutual funds.
While investing in mutual funds, an investor must consider the volatility associated with the equities as an asset class. The net asset value (NAV) of equity funds may witness a dip in the short run. But instead of redeeming your mutual fund investments, staying invested to reap benefits over the long run is always a good idea. Rather than attempting to time the unpredictable stock market, it is important that one trails the approach of ‘time-in-the market’.
Invest in SIP
What if we tell you that there is a better way to dodge timing the market and yet have the average buying price of mutual funds low. Enter Systematic Investment Plan, or SIP. SIP is an investment tool available for all types of mutual funds, though they are the more effective with equity-based schemes since equity is a more volatile than debt. SIP investments help you benefit from volatility by automatically purchasing more units when prices are low and vice versa, thus lowering the average purchase price. This helps you to use a drop in your mutual fund scheme’s NAV to your advantage. Additionally, it restrains you from going overboard when the NAVs are high by giving you fewer units at those higher levels. Thus, SIPs help to instill financial discipline among investors.
An investor can also consider to make a lumpsum in mutual funds. Understand the differences between SIP vs lumpsum and choose the tool that better suits your portfolio. In order to reap maximum benefit from your investments, it is vital that you diversify your portfolio across different categories of funds. While anyone can invest on their own, but one has to be really knowledgeable about the understandings and work-how of a stock market. However, not all investors need to have experience and knowledge of the markets. An investor can invest in mutual funds with the help of a fund manager. A fund manager advises an individual about the investment decisions. While choosing a mutual fund for your investment portfolio, make sure that it aligns with your investment horizon, financial goals and objectives, and risk appetite.
No matter how the market is performing over the short run, if your goal is to invest for a longer horizon and cater to your long-term goals, you might consider linking your SIP investments to your long-term financial goals. Happy investing!