Things to watch out for before making an investment.
Many new investors are plunging in to the market and making investments.
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For many, particularly those who are new to market, mutual funds have become the favourite destination.
However, even with its comparable safety, it's necessary to evaluate ones objectives prior to investment.
One chief factor an investor should be aware of prior to selecting a mutual fund is the amount of risk one is willing to take.
In other words, how much risks one can take in pursuit of higher returns. Those who prefer security over high profits, should avoid certain funds such as ‘aggressive stock funds’ and high yield bonds.
Another thing that should be taken in to consideration is the aims that the investor is hoping to accomplish with the investments.
Investors, who want security over profit should refrain from investing in high risk funds and invest more on government stocks, while those ready to take risks for possibility of profit should go for high yield bonds.
Adding to this will be the income that one hopes to earn from the fund.
If investors aim is a longtime profit, the investment should be made on growth stocks.
On the other hand, if immediate profit is in your mind, the investment should be on dividend-bearing funds.
Similarly, those wanting to lighten their tax burden could go for long term funds instead of dividend bearing funds.
First Published: IST