It is a popular myth that investing in equity mutual fund guarantees returns. Here are the statistics that prove it otherwise. More than 44 percent of open-ended diversified equity mutual fund schemes did not perform. Nine schemes under-performed their benchmark indices and 31 schemes under performed by five to ten percent. These stats are putting such schemes under the scanner.
So, does that mean an investor should not invest in such schemes? Well, it doesn’t mean that. But an investor needs to learn a lesson that not every actively managed fund offer high returns.
- Lessons that investor needs to learn before investing in mutual fund schemes
The investor should invest in these schemes carefully. They should check the consistency of performance while selecting the scheme to invest.
Second, the investor needs to invest depending upon the income. Quitting the schemes may attract the exit load. Hence, the investor needs to invest wisely.
Third, a lot of hype has been generated by the new investors around ELSS-equity linked mutual fund schemes that allow you to save tax. But advisors don’t recommend it. They think it is not a good strategy at this particular point. Investing in ELSS in a lumpsum amount can be a bit risky as the market is moving on an uncertain terrain. Though the market is bullish, a lumpsum amount in such schemes is not good as they come with a lock-in period of three years. If you plan to invest a large corpus in such schemes, it is better to have a long-term investment horizon of 7 years and a good risk appetite.
- Types of Mutual Fund Schemes
There are several types of equity funds
- Direct mutual funds- This scheme is gaining popularity among the high net worth investors and large corporate investors. However, the retail investors still stick to high cost regular mutual fund plans. This is largely due to their awareness levels. Even those investors who know that direct plans are less costly than regular plans, they are afraid to make a switch because it requires knowledge and deep understanding of the mutual fund industry. If you are aware of how to build your mutual fund portfolio, you can pick the direct plans.
Another type of mutual funds that garners attention is
- Sectoral mutual funds– They let you invest in a particular segment. But in such cases, one has to have a keen eye on the market cycle and breadth of the markets, and their performance
- Balanced Funds-The first-time investors should stick to balanced equity mutual fund schemes as it is a conservative way to invest in the equities that do not cause turbulence in the entire portfolio.
The unchanged monetary policy hints towards the rising cost and inflation, and there is no better way to bottom out the inflationary pressure than investing in the mutual fund schemes. Hence, the advisors advise you to invest in the market with caution and recommend you not to put all the eggs in the same basket. It helps to limit the unforeseen risks. Find the stocks that align with your investment goals and enter the market at the right time.