Mutual Fund investing does not seem beneficial to some people. The retail investors want to get the so-called benefits of Mutual Funds but most of the time they are the ones who hate this financial product more ofter. But it is not their fault as the financial product is one of the best instruments for long term wealth creation but they do not know how to use it efficiently.
We have heard many people say, ” Hum ne mutual fund mein invest kiya par ‘return’ nahi mila.” This happens to most of the retail investors. Two main reasons for the same are
- Wrong timing of entry
- Wrong timing of exit
TIMING the market is more needed in Direct Equity. One should know when to enter the stock. But in Mutual fund EXIT time is important. Why I am saying so because if we see the historical data of mutual funds long term investing most of the retail investors exit the mutual funds when the market started downwards. They sold their portfolio or stoped their SIPs in fear. That’s why it is always observed that investors’ returns and MFs returns hardly match. This gap between the two known can be called as ‘ignorance’ gap.
Greed and fear make the investor restless and make him/ her exit from the fund at an inappropriate time either on his own volition or based on incorrect advice of friends or colleagues. Here the role of ADVISOR comes into the picture.
The advisor helps the investor to control his/her emotions which can influence the decision they may take based on short term volatility
Before you decide whether Mutual Fund investing is good or bad better we know the basics of MF investing to stay on track:
# Don’t give up in a bear phase: A lot of long-term investors get scared by a sudden market drop and stop investing their mutual funds. You shouldn’t fall for that trap. A volatile market can award you with investment opportunities that you shouldn’t miss. Moreover, since you’re investing for the long-term, you shouldn’t allow yourself to get affected by short-term volatility.
# Increase your investment amount every year: Mutual fund can also provide compounding benefits like traditional products as EPF and PPF but can not be seen each year because of volatile nature. But if you are disciplined in investing and keeps on increasing SIP amount but as your income goes up every year, in the longer-term you can able to accumulate sizable kitty.
# Check your funds’ performance annually: It is not wise to invest in a mutual fund and forget about it for 20 years. It is also not advisable to check the fund’s returns every week. An annual check and re-balancing of the portfolio are good. In this review process if the selected mutual fund is not performing and it is way below its benchmark then one needs to change that,
# Map your funds to goals: Follow Goal-based investment by allocating funds to specific goals on investment. This will helpful for you to start funding all your goals simultaneously as well as follow proper asset allocation. The Goal-based investment has the potential of turning out to be the most fruitful way of mutual fund investment.
Summary of Points to remember :
# Fix your goal first and fix its time horizon.
# Segregate them into short term and long term goals.
# Choose Debt Mutual funds for Short term and Equity Mutual funds only when the time horizon of a goal is or more than 7 years.
# Then map each SIP in a mutual fund with that particular goal.
# There is never a good time to start SIP. Don’t try to time the market and sit on the cash looking for the right opportunity.
# Give proper time to each chosen SIP to witness both the bull and bear phases of the share market.
# Don’t jump on the conclusion to change the chosen SIP of the mutual fund every 3/6 months.
# More than focusing on the capacity of generating high return focus on managing downside risk management of the chosen SIP.
# Always choose your mutual fund SIP based on Core and Satellite approach especially for Equity Mutual fund.
# And very IMPORTANTLY never stop your SIP investment because of short term fluctuations in the share market. Both bull and bear market cycles are important for the SIP to generate good returns in the long run.
# Patience and discipline in continuing, investment is SIP is very important for reaping huge benefits out of SIP investments.
# Equity Mutual fund SIP pays off only in the LONG RUN.