Investment plan:
First, decide the amount you wish to invest. Once you have done that, chalk out your investment outflow plan keeping in mind foreseeable expenses and your cash inflows from salary and other incomes. If you have invested in various mutual funds, distribute the payout over different dates of a month to help retain liquidity by preventing funds drain-out from savings account at one go.
Investment objectives of funds:
If you are a new investor, opt for large-cap diversified funds, making them the core of your portfolio. Although large-cap diversified funds underperform small-caps and mid-caps during market rallies, they provide a good cushion during market downturns. Avoid investing in sector funds until you are fully sureof the prospects in a particular sector as an overall downturn in the sector can adversely affect the portfolio. Also,as one of the main objectives of investing in a mutual fund is to seek diversification, investing in sectoral funds defeats that very objective.
MF asset size:
The next thing you need to decide on is which mutual funds to invest in. Apart from reviewing the scheme or the objectives of a mutual find and comparing it to its peers, the total corpus or assets under management (AUMs) have to be compared. For a new investor, Rs 500-crore AUM is a good starting point. Although there are several good funds with lower AUM, it is better to play safe when you are testing the waters.
Age of the Fund:
Ensure that the fund you invest in has been active for at least five years. A period of five years or more covers various market cycles including bull and bear phases, thus acting as a good benchmark for comparing mutual funds. A relatively good performance by a mutual fund in a bear market is an indicator of good fund management.
Reputation of the Fund House:
Again if you are a new investor, invest with reputed MF houses which have been operational for a long time and have several top-ranking funds in their basket.
By Naveen Kukreja, Director, PaisaBazaar.com
(First published in The Financial Chronicle on 11 Nov 2015)