The Indian stock market has been clocking all-time highs on a weekly basis over the last few months. With this, the difficulty to identify and invest in the right opportunities has increased as well.
On a year-to-date basis, while the Nifty 50 benchmark index has delivered 26 percent, the Nifty midcap and Nifty small-cap index have delivered 43 percent and 51 percent respectively.
Investors are thus opting for new investments via mutual funds and ETFs, as evident from the strong inflows into existing schemes as well as new fund offerings. Systematic Investment Plans (SIPs) have been strong this year, with Rs 9,000 crore of inflows averaging every month.
However, choosing the right mutual fund from a myriad of schemes and portfolios has been daunting for most passive investors.
CNBC-TV18 spoke to Gopal Kavalireddi, Head of Research at FYERS to find out the tried and tested principles of investing in mutual funds.
Here are key things he pointed out:
Kavalireddi said that it is essential for every investor to assess his/her risk appetite, and acknowledge the volatility in equity investing. This will help in staying invested during severe drawdowns.
Kavalireddi further said that understanding each ones’ sources of income and surplus available for investments also plays a key role in setting a corpus goal that can be built over time.
Accepting the fact that superlative returns are not possible every year and the best way to counter volatility is through time is an understated fact. So, Kavalireddi said it’s prudent to increase the time frame of investment depending on financial goals.
Financial goals also play a key role here.
Clarity of purpose helps in making the right choice, as different goals need to be addressed through different investment instruments – debt or equity, through various time periods – short, medium, or long term, Kavalireddi said.
Once the investor is clear on the above personal factors, then choosing the right fund becomes much easier.
Investors can choose the right mutual fund on the basis of:
1. Fund category - Equity or Debt
2. Scheme related information – AUM size, expense ratio, fund manager, portfolio type
3. Equity style – Large, mid or small-cap orientation across value, blended or growth styles
4. Returns – Rolling returns over three-year, five-year, 10-year periods offer the best clarity
Kavalireddi added that clarity in one’s own internal factors coupled with the above parameters will help in making the optimal investment decision, to suit one's respective needs.
"Once the investment decision is made, it is all about maintaining the necessary financial discipline and adhering to following the chosen financial path," he said.
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