Over the past few decades, mutual fund investments have grown rapidly and have become a highly preferred investment for beating inflation and gaining wealth.
As a new mutual fund investor, you must align your investments to suit your financial goal and build the required corpus. Now, you may wonder “how to become a good investor?”. The answer to the question comes down to 3 main factors. These include –
- Your investment goals
- Your investment tenure
- Your risk appetite
Below is the mutual fund investment guide on how to be great at investing and making the most of your mutual fund investments.
- Investment goal
Your financial goals may include retirement planning, a child’s marriage, and higher education, a down payment arrangement for a car or home loan, etc. There are various advantages to aligning your investments with your goals. These include –
- As you tend to have an attachment to your investment goals, it is easy to remain committed to your financial plan, which will allow you to accumulate the desired corpus over the long term.
- A clearly defined financial goal can help you to figure out how much you need to save or invest for a specific financial goal.
- Associating investments with financial goals can help you make the correct investment decisions i.e., opt for fixed-income instruments for short-term financial goals, choose equity investments to meet your long-term financial goals, etc.
- Investment tenure
One of the crucial aspects of financial planning is to define the investment period. Being aware of your investment tenure aids you to invest in the correct asset class. So, in the case of a long-term investment horizon, short-term volatility tends to have a slight impact on your absolute returns over the investment tenure. For meeting your long-term goals, equity can be a prudent investment choice.
Even while equity is volatile over the short term, it can recoup and enhance in value, which further provides you with the benefit of capital appreciation. In the case of short-term financial goals, you may opt for short-term debt funds as they provide capital protection with high liquidity features and offer satisfactory returns.
- Risk appetite
Risk appetite is your preference or attitude toward market investment considering your age, obligations, and investible funds. Few of you inherently are more risk averse as compared to others regardless of your age, life stage, and your financial situation. Risk tolerance even is dependent on your investment experience as an investor, i.e., if you are a new investor, then you may hold less risk appetite than any experienced investor.
It would help if you had a diversified mutual fund portfolio forming distinct asset classes like equity, fixed income assets, etc. with distinct kinds of fund categories like mid-cap, large-cap, multi-cap, etc. Your investment in the market, as mentioned above, is based on 3 major factors – investment goals, period, and risk appetite.
Thus, it is always recommended to engage a financial planner or advisor if you are new to mutual fund investment to help you in defining your goals and understand risk potential. Based on these factors, you can choose a suitable mutual fund or market-linked scheme.
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