You might be considering to invest in gold this Diwali like every year. However, do not lose sight of your goals and risk appetite in choosing your assets.
Are you considering investing in gold this Diwali like every year? While it’s a great idea to create wealth on a day so auspicious and grand in its own way, you might want to think of the assets you want to pick. Do not lose sight of your goals and risk appetite in choosing your assets. You also need to keep an eye on the market to make such decisions.
This year, the equity and debt markets are extremely volatile due to macroeconomic factors such as increasing crude prices, rising interest rates, and the rupee falling against the US dollar. So, the focus remains on investment in assets that allow an attractive ROI by taking the least amount of risk. None other than an SIP in mutual funds give you the best of both worlds.
Why invest through SIP?
Investing through SIP means investing a fixed amount on a regular basis irrespective of the NAV or market level. This implies that you buy more units when the markets are low. This means lower average price resulting in higher return in the long term. So, SIP investment ensures that you pay an average price over a period of time.
Secondly, SIPs allow you to invest an amount as small as Rs 500 in a regular interval. It’s a great way to inculcate the habit of investing in a disciplined manner. You can diversify the instalments into different schemes to further reduce the risk. SIPs also give you the benefit of convenience and liquidity in comparison to lump sum investments. With the current investment market being highly volatile, SIPs give you the edge of staying invested safely, thus helping you move effectively towards your financial goal.
Mutual fund categories available in the market
There are various categories of mutual funds available in the market for you to invest through the SIP mode. Basis your risk appetite, return expectation and investment horizon, you can select the appropriate mutual fund type for you. Liquidity and tax implications are two other crucial factors investors look at in selecting their funds. The broader asset classes of mutual fund include Equity, Debt, Hybrid Fund, solution-oriented etc. These categories are further classified into sub-categories based on tenure, risk and return offered by the underlying asset. For example, under Equity fund, you have the options of large cap, mid cap, small cap, dividend yield, ELSS and so on to choose from. The sub-categories of a debt fund includes liquid fund, money market fund, long duration fund, corporate bond fund and so on. The hybrid fund is further categorised into balanced hybrid, aggressive hybrid, conservative hybrid, among others. Other fund categories may include index fund and other schemes.
Which Fund Should You Pick
You must identify your goals to start with. For your short-term goals such as buying a car or going on a holiday, invest in low-risk mutual fund schemes such as liquid or ultra-short-term mutual fund. For medium-term goals such as funding children’s education, wherein you have an investment horizon of 3 to 5 years, invest in assets which have a moderate degree of risk associated such as hybrid funds. For long-term goals such as buying a house or creating fund for post-retirement, the risk appetite is much higher and the investment horizon is long enough to mitigate the risk. So, you can opt for high-risk, market-related investment assets such as equity-oriented mutual fund to generate hefty returns.
Apart from your goals, you must consider factors such as your age and risk appetite before selecting a fund. For someone who is at 30 years of age, equity mutual fund SIP is an ideal long-term investment asset, but for an investor in his 50s, hybrid or debt fund would be appropriate to reduce the risk level. Let’s look at some of the top-performing mutual fund schemes under various categories:
To ensure appropriate selection of funds, consider consulting your investment advisor.
(The writer is CEO, BankBazaar.com)
(Disclaimer: These are the author’s views. Please consult your financial advisor before making any investment)