You must have heard the very important disclaimer of mutual funds saying, “Mutual Fund investments are subject to market risks, read all scheme related documents carefully” in a supersonic speed. Mutual funds are also a very commonly used term that you will hear on mentioning ‘Investment’. Let’s see what mutual funds mean and how investing in mutual funds can be profitable even amidst the pandemic.
What are mutual funds?
A mutual fund is a shared fund in which money from multiple investors is pooled together to purchase various securities. There are various types of mutual funds offered in the market for investors, which can seem to be overwhelming for some. It can be confusing to choose one or some from these and use them for your own profit.
COVID-19 has spread its wings over the globe taking it under a dark uncertainty. Amidst this uncertainty, it becomes crucial to be extra careful about making any investment decision. Although with some tips and precautions, you can make sure that your mutual funds remain to be productive.Read more: Are Online Investing Courses All They’re Cracked up to Be?
Here are a few tips on how to make it happen-
- Invest based on your risk appetite – You must always check your risk appetite, and more frequently when the market is uncertain. Pandemic has caused a financial crisis worldwide, which may affect you more if you have a low-risk appetite.
It is important to plan on rebalancing your investment portfolio based on your current risk appetite, lifestyle, and current market situation.
- Assess your asset holding tenure – You must be thinking how to decide the tenure of asset holding based on the mutual fund type. If you are planning to invest for long-term, 3 years or more, then you must consider equity funds. If you are looking for medium-term investment like 1-3 years, then go for short term debt funds.
- Invest in different schemes – In the current volatile market situation, it is crucial to diversify your investments across various asset classes and companies within the same asset class. It is also important to balance your portfolio in equity and debt funds depending on your risk appetite, age, and returns requirements.
- Know your liquidity requirements – A wise person always maintains sufficient cash in reserves, especially for such tough times of market uncertainty.
- While you invest in mutual funds, make a point to keep an adequate investment in schemes that offer quick liquidity. This will save you in case you face a cash crunch.
- Keep track of fund ratings – Mutual fund schemes are subject to market risks. Hence, they must be bought only after performing adequate research. The best way to find a reliable mutual fund scheme is to check its rating by CRISIL, ICRA, etc.