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Tips To Help You Manage Investments In Equity Mutual Funds in current market scenario
Posted on Monday, January 29th, 2018 | By IndusInd Bank
The Indian stock market has touched new heights despite of short-term blips on account of demonetisation and introduction of Goods and Services Tax(GST) This rise in the stock market has resulted in a steady increase in the number of domestic investors. More and more people are choosing to invest their wealth in financial instruments as opposed to saving in traditional instruments. Recent study suggests that more than 50% of money flowing in equity funds is through systematic investment plans. Also, the shift towards equity funds is largely on account of them being more tax efficient and better returns, as the study suggests.
Equity mutual funds are emerging to be a popular method of investment as it is considered ideal for long term capital growth. As one invests in equity mutual funds, the same gets spread into different sectors, thereby, reducing the risk of loss in the future. Benefits of investing through equity mutual funds include:-
1. Portfolio Diversification
2. Professional Management
3. Liquidity
4. Systematic investment option
5. Capital appreciation
6. Tax benefits
7. Financial goal oriented
Here are 5 useful tips that can help you manage your investments in equity mutual funds in the current market scenario.
Invest In Long Term
Equity Mutual funds are suitable for investors who are seeking long term capital growth. This is because the longer you invest, the volatility and the probability of loss decreases. For instance, HDFC Taxsaver Fund gave a return of 26% over the last 20 years. Let’s say if an investor invested 1 Lakh with them for 20 years, the return would be INR .57 crore. At the same time, if one were to invest the same amount for 10 years, the return would be INR 3.14 Lakhs. Thus, it shows that the longer you invest, the probability of loss reduces as well as the volatility in returns.
Invest Through SIPs,
Systematic Investment Plan(SIP) is investing a fix sum periodically in a fund. Opting to invest in mutual funds through regular SIPs means you do not have to time or actively track your investments according to the corrections. SIPs ensure regular investments on pre-determined dates decided by you and allow for cost averaging by buying you more units during market corrections.
Invest In Instalments
In case of steep corrections, avoid stopping your SIPs if you have made lump sum investments. Market corrections can be seen as opportunities for creating long-term wealth. By staggering your lump sum investments into instalments, you can reduce your investment cost and arrive at your financial goal that much sooner.
Diversify your investments
Investing in equity mutual funds does not mean that you have to stick to your fixed set of stocks, especially when the equity market is over-valued. If your existing portfolio consists majorly of stocks from the over-valued segment, then you can reduce your portfolio risk by investing in under-valued stocks instead. As mid-cap and small cap stocks face a higher valuation at the moment, a large cap stock and a selection of multi-cap stocks can reduce the risk to your portfolio. Scan through your portfolio and remove any stocks that have a high valuation or are over-priced in the current market.
With these useful tips in mind, you will be able to navigate your way through the current equity market and make the most of the situation.
