Have you recently delved into the world of investment? Are you unsure about your investment decisions? Confused if you should go about with mutual funds or not? Worry not. Here we provide five important considerations to be evaluated before you decide to move forward with your investments. Read on to understand these considerations.

Identifying your investment objectives

You must be familiarized with the adage – ‘One man’s food is another man’s poison’. This applies to investments as well. This typically means that every individual has their own set of aspirations and objectives. What’s more, different individuals have varying tendencies of acceptable levels of risk. As a starting point, lay out and clearly define your investment goals which will further help you evaluate how and where to invest your money.

The time factor

How long you are willing to invest your funds helps to determine your investment horizon. This includes the time you are willing to invest your funds and if you would be required a part ot a part or your entire investment corpus. If your investment horizon is to fulfil your short-term goals, then you might consider investing in conservative investment options such as fixed-income securities. On the other hand, if your investment horizon is to fulfil your long-term goals, then you might consider allocating your funds to equities.

Understanding your risk appetite

The phrase ‘no pain, no gain’ essentially lays out the direct relationship between expected returns on a mutual fund scheme and the level of risk they are exposed to. As a thumb rule, the higher the level of risk of a type of investment, higher is the potential for the fund to achieve significant returns. If you are an investor who is willing to expose their funds to high levels of risk in an attempt to achieve higher returns, then you might consider investing in equity funds or stocks. Small-cap equity funds and mid-cap equity funds are also a good option. However, if you are a risk-averse investor, then you might consider allotting your funds to fixed-income securities that are not heavily impacted by the volatilities in the market. If you have a medium risk profile, then you might consider investing in a mix of equity and debt funds. Hybrid funds are ideal for such investors as they offer the best of both worlds – equity and debt. If you get restless at night thinking about your mutual fund investments, then chances are you are investing in investment options that have a higher level of risk profile than your risk appetite. In such cases, it is often advised to move back to less risky investment options to provide you with the state of calm.

How much are you willing to invest?

How much money you are willing to invest would be dependent on the value of the investible corpus that you wish to attain at the end of the investment horizon. It’s important to figure this amount so as to better plan your mutual fund investments. You can use a mutual fund return calculator to evaluate the SIP or lumpsum amount needed to achieve your financial goals.

Benefits of a financial advisor

A financial advisor can be extremely helpful in making your investment decisions. These advisors are mutual fund experts who have abundant knowledge and experience about the markets. These advisors can also help you with drafting a proper financial plan and evaluating the appropriate investment options for your portfolio. They do so by ensuring that the fund’s objectives are in line with the portfolio’s objective. Further, they should also align with your risk profile and investment horizon. Happy investing!

Comments are closed.