People usually prefer investments in mutual funds India for varied reasons. These may include meeting financial goals or acting on the basis of their individual risk appetite. A mutual fund investment should however be chosen carefully since you should zero in on the right reason first, i.e. risk appetite and financial goals. Choosing between the twain may appear a little difficult and rightly so! However, both are entwined in ways that you have not imagined yet.
You cannot always choose from mutual funds India on the basis of their earlier performance and other factors. You also have to look at fees and added charges, downside risks, consistency of overall performance and similar factors. A mutual fund is a suitable investment option for planning out financial goals. This instrument for investment will be sufficient for catering to a bigger spectrum of risk tolerance or appetite. It is vital to keep risks in mind while investing in mutual funds since returns from the investment are also related to risk factors. You should ideally select funds which have higher risk appetite in case capital appreciation is your investment goal. Simultaneously, you may consider taking more risks if you look for a longer investment tenure. Even if you seek a longer investment duration with sizable capital appreciation but do not have ample appetite for volatility, you will find suitable options pertaining to mutual funds as well. Investors have varying risk tolerance even in case of varying objectives. The first thing to do is identifying your financial goals and objectives. You should first zero in on the investment objectives, i.e. long term capital gains or current earnings. Work out what you will use the returns for, i.e. paying for higher education, funding your retirement or buying a house/car down the line. You should also consider personal tolerance for risk thereafter. Are you okay with sudden market fluctuations and changes in the value of your portfolio? Are you looking for something conservative or can you take some market risks? You will have to balance your need for returns with the risks involved. The desired time horizon or tenure should be carefully considered. How long do you wish to continue your investment? Do you foresee any concerns relating to liquidity in the near future? A horizon of at least 5 years is suitable since there are added costs of mutual funds and these may initially take away a chunk of your returns or earnings. Investors may invest to earn better returns for the shorter duration as compared to fixed deposits. They may plan long term goals for investments with mutual funds. These include the education and weddings of children, buying a home and also retirement. The risk tolerance may vary from one investor to another. Some investors have a higher appetite for risk while planning for retirement although risk tolerance may be low while planning for higher education costs of children. Hence, do the math and operate accordingly.
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