3 Tips To Wisely Invest In Mutual Funds

How to go about mutual fund investments in a more organized manner? Here are 3 tips to make a success of your mutual fund investments.

9 Jan,2019 00:15 IST 627

Mutual funds are not just about investing in asset classes. You need to first plan your work and then you need to work your plan. You need to adopt a prudent and smart approach to investing in mutual funds as many of your long-term goals depend on these investments. How to go about mutual fund investments in a more organized manner? Here are 3 tips to make a success of your mutual fund investments.


Start with your goal in mind and tag them to the process

This is the first and, perhaps, the most important stage of your mutual fund investment process. You always begin with your financial goals. What exactly are your financial goals? We all have dreams in life like a comfortable retired life, a vacation in the Alps, a Royal Caribbean Cruise, leaving wealth for our kinds, taking care of their education etc. These life goals have a very strong emotional value attached. But, to achieve these goals, one needs money. The bad news is that these goals need a lot of money. But, the good news is that you can easily plan for most of your goals. That is where mutual funds come in handy.

The beauty of mutual funds is that you can tag mutual funds to specific needs. For example, equity funds are perfect to meet long-term needs. Balanced and debt funds are ideal for meeting medium-term goals. For very short-term goals, liquid funds and liquid plus funds will be a good fit. This is the first step to investing in mutual funds. You need to identify goals and tag your mutual fund investments into a process.


Take a systematic approach to investing in mutual funds

This is again very significant. How should you invest for your long-term goals? Obviously, you will not be able to save lump-sum for your major goals. You need to adopt a systematic approach. A SIP could be your best bet to achieve long-term goals through mutual funds. The SIP approach has some unique advantages as under:

- The SIP enables you to match your inflows with our outflows. Most of us get regular income either in the form of salaries or commissions. By timing the SIP along similar lines you achieve two things. Firstly, it builds saving and investing discipline by default. Secondly, you can plan your outflows much better in this case.

- The systematic approach makes the best of market volatility. It is hard to put your finger on the pulse of the market and call when it is undervalued and when it is overvalued. The good thing is that you do not need to do so. Since market returns are all about time rather than timing, don’t obsess with market timing. If you adopt a systematic approach to investing then these market vagaries get automatically smoothened out. In the process, you will reduce your average cost of holding and enhance returns on the investment.

- The power of compounding in SIP works to generate wealth consistently in the long run. Consider the table below:







Monthly SIP





CAGR Returns





Total Investment

Rs.12.00 lakhs

Rs.18.00 lakhs

Rs.24.00 lakhs

Rs.30 lakhs

Investment Value

Rs.26.21 lakhs

Rs.61.29 lakhs

Rs.131.63 lakhs

Rs.272.73 lakhs

Wealth Ratio

2.18 times

3.41 times

5.48 times

9.09 times


As can be seen from the above table, a regular SIP of Rs.10,000 per month in an equity fund can generate substantiate wealth ratio as the time period expands. This systematic approach typically becomes more relevant time frames.


Monitor your fund portfolio and rebalance when required

You are not just done with investing your money in mutual funds. You also need to regularly monitor and rebalance the same. You need to monitor at 2 levels. Firstly, monitor with reference to your goals and secondly monitor with reference to the external environment. While you can do constant monitoring with requisite alerts set in the system the rebalancing can be less frequent. Here is how rebalancing can be triggered.

Ideally, rebalancing can be undertaken once in 3 years in case of long-term goals. Some of your funds may have underperformed, certain goals may have been achieved and the macro environment may have changed calling for a rebalancing. Above all, a rally in equities or a sharp correction in equities may have taken their allocation much below the originally envisaged share. That is again a time to rebalance and restore the original levels. This is your last and final step in ensuring that you have a smart mutual fund portfolio

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