How do you plan for a mutual fund investment?

mutual fund investment


With over 100 asset management companies offering thousands of schemes, mutual funds provide a convenient way to invest across various asset classes like equity, debt and gold. Proper planning is crucial before investing in mutual funds to meet your financial goals. Here are some tips on how to plan your mutual fund investments.

Define your investment goals

The first step to invest in mutual fund is to be clear about what you wish to achieve from your mutual fund investments. Do you want to build a corpus for retirement, your child’s education or buy a house? Defining investment goals will help decide the schemes you need to invest in, the investment horizon and the level of risk you can take.

Choose the right mutual fund

There are equity funds, debt funds, hybrid funds, solution-oriented funds, index funds and more to choose from. Equity funds are suitable for long term goals as they carry higher risk but have potential to deliver higher returns. Debt funds are less risky and work for short- to medium-term needs. Hybrid funds invest in equity and debt to balance risk and returns. Evaluate historical returns, portfolio holdings, expense ratio and fund manager track record before selecting a scheme.

Diversify across schemes

Don’t put all your money in just one scheme. Diversify across equity and debt funds to manage risk effectively. Have a mix of large-cap, mid-cap, sectoral and thematic funds in your portfolio. Diversification helps reduce risks and provides stability. Avoid investing in multiple similar schemes from the same fund house.

Decide asset allocation

Asset allocation is distributing your investment across various asset classes. Determine the percentage of investment you want to make in equity, debt and other instruments based on your risk appetite and time horizon. Equity allocation can range from 30-100% for investors with high risk tolerance and long-term horizons. Debt component is ideally higher for conservative investors.

Invest through an SIP

Systematic Investment Plan or SIP allows you to invest a fixed amount regularly in a mutual fund. An SIP helps in rupee cost averaging and investing disciplined amounts regularly. This helps deal with market volatility effectively. And this is where an SIP calculator can help you to decide on the amount based on your income, expenses, and financial goals.

Track and review

Review your mutual fund portfolio at regular intervals. Evaluate performance of schemes, check if they are on track to achieve targets and make necessary adjustments. Redeem non-performing schemes and invest in better options. Keep portfolio balanced across asset classes.

Focus on the long term

Don’t obsess over daily NAV movements. Equity investments tend to deliver good results over 5-7 years or longer timeframes as the effect of compounding increases. Have patience as short-term volatility evens out.

By following these steps, you can create a well-diversified mutual fund portfolio suited to achieve your financial goals and investment needs in a systematic manner. Mutual funds offer simplicity, affordability, liquidity and transparency that can help retail investors meet their objectives. With some discipline and proper planning, mutual funds can pave the path towards your financial success.

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