Million Dollar Question - Mutual Funds Sahi Hai ?

Mutual Fund Investments

Mutual Funds Sahi Hai?

Due to falling fixed deposit rates & public awareness initiatives by SEBI (remember Mutual Funds Sahi Hai!! advertisements), investors started jumping onto mutual funds throughout 2017. I see nothing wrong in the awareness advertisements, except for the fact that many investors looked at it as a Risk free investment option which gives high return on investments. 

Many fell into the trap & invested lumpsum into mutual funds - they were proved right by the exorbitant returns during the year. Many mid cap & small cap funds gave a return of over 40% in one year, SBI Small & Midcap fund had given 80% returns in 2017. Most of the experts on TV Channels suggested downside is protected due to this liquidity flow. 

What they had failed to realize is the human behavior!! Greed & Fear (remember BitCoin?). Soon, market became jittery & started moving in the reverse direction. People became cautious & realized this is not a risk free investment destination & started withdrawing their funds. Well, what they failed to understand is Mutual funds are right, but only if you invest for long term and with a strategy. The definition of long term might vary for each individual, but mutual fund is a good instrument for a period above 5 years. It is truly said that compounding is the 8th wonder of the world, but should be managed effectively. 

Systematic Investment Plan

SIP's are undoubtedly your best friend - it works on the cost of averaging & saves you from market volatility. Let's say you started an SIP for 1st of every month & invested Rs. 1000 at an NAV of 20 when the market was at peak & next month your transaction of Rs. 1000 is at an NAV of 18. Now you have a total investment of Rs. 2000 at avg NAV of 19. What would have happened if you would have invested a lumpsum at NAV of 20 & market kept falling - i'm sure at some point of time looking at your loss you would have taken a decision to book loss & liquidate. 

Markets never move in a linear fashion & hence SIP helps you to average out your investments & ensure downside is protected during volatility. But ensure you are continuing your SIP when the market is down. Who would remember the market fall of 2018 when Sensex hits 50000 or Nifty hits 14000.

Learn about benefits of SIP - The magical recipe for financial success

Where should you invest - Large Cap, Mid cap, Small Cap Funds?

Large cap companies are usually less volatile & are best for conservative investors investing for around 5 years. If you have a slightly aggressive target and can afford to see short term losses Mid & small cap funds are very suitable & can give very high return over a longer time duration. This is the reason where a person should plan atleast 10 years of investment in a Small or Midcap fund. These days many fund houses offer Balanced funds, where they invest in each category based on market condition - they are ideal as well for long term investment as well.

Learn the principle of diversification - How to diversify your mutual fund portfolio?

One Liner Tip -

Patience is what separates Men from the boys!! Happy Investing!!

Mutual funds as an investment instrument has been gaining popularity over the years, thanks to the wide range of options available and the ease of KYC process. To know more about them, check out The Mutual Funds Sahi Hai campaign, launched by The Association of Mutual Funds in India (AMFI) at

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