DIY Mutual Fund investing: Key things to keep in mind before starting SIP yourself

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Updated: February 24, 2020 1:59:20 PM

Selecting a top-of-the-table MF scheme is not all about the Do It Yourself (DIY) investment to ensure that your financial goals would be fulfilled.

mutual fund, MF, mutual fund sahi hai, AMFI, Association of Mutual Funds in India, Do It Yourself investment, DIY investment, financial planning, systematic investment plan, SIP, equity MF, market riskAMFI’s “Mutual Fund Sahi Hai” campaign is instrumental in popularising systematic investment plan (SIP) as a preferred route to invest in equity MFs.

The “Mutual Fund Sahi Hai” campaign run by the Association of Mutual Funds in India (AMFI) has made people aware of the benefits of investment made in mutual funds (MFs) and has made this instrument popular especially among the young investors. The AMFI campaign is also instrumental in educating people in selecting different funds to fulfill different financial goals and popularising systematic investment plan (SIP) as a preferred route to invest in equity MFs.

Along with AMFI, some other investment platforms are also active in attracting people towards MF investment by showcasing higher return than other investment options. However, selecting a top-of-the-table MF scheme is not all about the Do It Yourself (DIY) investment to ensure that your financial goals would be fulfilled.

Although the market risks associated with equity MF reduce with the length of investment period, but it differs from person to person how much risk he/she should take depending on financial need, available resources, investment period and risk appetite.

So, it is essential that before selecting a fund, you should do a proper financial planning to identify the individual financial goals, time periods in reaching each goals and funds needed to meet each each goals taking into consideration effect of inflation.

Once, the individual financial goals are determined, you may determine which investment instruments would be appropriate to fulfill each goals by taking minimum possible risk depending on the available financial resources. Higher is your financial resources, you may realise the goals by taking lower risk and vice versa.

Go for MF only if it is needed to meet your financial goal and select a scheme depending on your risk profile as per the financial planning.

However, selecting a fund by just going through the performance table would not be enough as “past performance is not a guarantee of future results”.

Also, people mostly go for MF investments without any planning by seeing others investing when the existing investors have already made profits in a high market. Moreover, at high markets, most risky MF schemes top the performance table, and such funds would most likely occupy bottom of the performance table during low market phase.

So, selecting a scheme needs lots of research to determine how much risk it is taking, how diverse is its portfolio and how experienced is the fund manager(s) in managing such funds and his/her/their pas performance.

Even after selecting a fund, monitoring is essential to check if it is lagging its benchmark index and other similar funds due to change in portfolio and/or change in fund managers, or due to some other fundamental reason that makes the fund too risky to continue with.

You should also track the market as your financial goal nears, so that you don’t get stuck up in low market cycle and may fetch higher return.

So, if you want to ‘do it yourself’, do it properly to ensure that you don’t end up in a financial mess, else take help of an experienced financial advisor.

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