Fund investment has seen an excellent rise with strong opportunities available in the market. Almost every person is invested in funds one or the other way.
However, there are certain aspects associated with mutual funds that decide your success rate as an investor. This article shows those statements that you should remember when investing in funds.
“All schemes are not similar”
Funds differ in terms of various types. You can find schemes in terms of maturity, investment objectives, and other goals.
Maturity period offers three major categories that are open-ended, close-ended, and interval funds. There are different lock-in periods that decide your ability to obtain your money or sell stocks in the market.
However, the most important category includes investment objectives. Schemes include equity funds, debt funds, liquid and other types of funds. They all come with different properties and benefits. For instance, you may invest in equity funds for growth purposes. On the other hand, debt funds provide assurance of income via government or corporate bonds. But if you are looking for tax saving opportunities, ELSS funds suit the best.
The variety enables you to create a diversified portfolio and earn maximum returns. But it all comes down to your ability to plan and choose the right mutual funds for your financial profile.
“Returns depend on investment horizon”
Investment horizons are the time periods that scheme comes with. There are short-term and long-term time horizons available. In fact, you can invest your money for very short-term such as a few months. However, amount of returns changes according to the time period you choose. Longer investments always come with better returns.
Experts recommend thinking about what you are trying to do with your money. If you have a large liquid amount, which is required in a few months, you can put that money in a very short scheme and get your money back whenever required. On the other hand, if your goal is to grow your wealth for education, retirement, or other long-term goals, choose longer horizon.
“Risk control leads to rewards”
High or low-risk levels depend on the funds you choose, the provider, time period of investment and various other factors. Always remember that risk level changes in terms of fund types as well. These are all fund-related risks that you need to evaluate as an investor.
Apart from the fund-related risks, you need to focus on your personal risk tolerance too. Your risk tolerance capacity is the ability to handle fund-related l risks related to a scheme. Your current financial situation, continuous financial needs, and future expectations help you understand your capacity to tolerate risk.
Controlling risks of mutual fund investment is possible by aligning fund-related risks with your personal risk tolerance ability. Then, you can diversify your investments in terms of high and low risks in order to maximize rewards. The idea is to find a perfect combination of schemes that save you from any financial complications.
Keep these statements in mind and the idea behind them to become a smart investor.