Wealth Guide: 5 Mutual Fund, SIP strategies to keep in mind while investing

Stock markets are not for baseless speculation. Those intrigued by sharp movements in the equities market know that this is not a usual phenomenon.

There is a risk of losing gains that the investors might have accumulated over many months. Pic: Pixabay

Stock markets are not for baseless speculation. Instead of developing FOMO and jumping into the stocks without understanding the relative strengths and fundamentals, it is better to assess the potential and invest following a disciplined strategy.

Currently, the markets are in a peculiar position. There is volatility and fear on account of global geo-political tensions, rising crude oil prices, rising inflation, and expected fed rate hikes.

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For a mutual funds investor, it is crucial to have a correct approach. Here are 5 best practices that a mutual fund investor should follow to create wealth in long term:

Vaibhav Agrawal, SVP Research, Angel One Limited decodes 5 strategies that a mutual fund investor should consider while investing:

1. Stay committed to SIPs

Based on the state of the market (bearish or bullish), it is never recommended to stop or postpone SIPs as they tend to provide rupee cost averaging benefits over a long period of time. Buying more units in a falling market and less in a rising market helps reap the benefits from both trends.

2. Diversify your investments

Putting all your eggs in the same basket is never advisable Here, eggs mean money, and basket means different asset classes. So, you should identify certain mutual fund categories and rationalise your investments among them based on your asset allocation and risk profile. This allows for stable asset allocation and returns, thereby, preventing unmanageable losses during catastrophic events.

The most commonly used diversification approach is by investing in multiple fund categories that can balance each other’s risks. For example, most seasoned investors take some risk through equity funds and manage it through some fixed-income debt funds.

3. Don’t time the market

Time in the market is more important than timing the market. Timing the market correctly is difficult for retail investors. It is better for a retail investor to follow their asset allocation in a disciplined manner.

Debt instruments earn interest incomes, making them bear market-friendly, while equities prosper in bull markets.

An efficient way to do this is to invest in dynamic asset allocation mutual funds that follow time-tested strategies to adjust the allocation of debt and equities as per prevailing market conditions.

4. Keep track of market corrections

Most mutual funds provide the facility of additional investments (lump sum and extra SIPs). This facility can help increase the total investment.

An investor must keep track of market movements to make additional lumpsum investments when the markets witness corrections. Such an approach could help in increasing the overall returns from mutual funds.

5. Avoid exposure to sector funds

Investing in sector-specific funds results in concentration and sector-specific risks. Therefore, generally, a retail investor should invest in diversified funds to avoid the above risks.

Conclusion

Investment in Mutual funds through the SIP route is an excellent way to build wealth over a long period of time. One can follow the above-mentioned best practices to make the most from mutual fund investments.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)

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