Mutual funds as per survey have been the major investment that attracted investors' attention amid the pandemic. Notably, their benefits are many as it enables the investor to not actively manage the stocks, can compound wealth over the years as well as via the SIP and STP route help in swift transfer of funds between equity and debt funds.
So, as mutual funds can offer good enough return with curtailed levels of risk, here are some of the key points to note for making the most of mutual funds or SIP.
1. Do not stop a SIP in bearish market mood:
This is not advised as if you go by it then in such a situation you actually won't be able to realize the benefit of rupee cost averaging that comes with such SIP plans that helps you get more units in lower markets and hence reduce your investment cost and increase your returns.
Also, the period of bearish market can be capitalized on by parking investible surplus such as by topping the current SIPs. This topping of the SIP in a weak market can also help you in realizing your end financial goal may be sooner than the previously considered timeline.
2. For better returns and fund selection always go with long term performance:
The recent fund performance cannot be the appropriate factor to decide on your mutual fund/SIP investment. As the various market factors such as in the current situation high liquidity, economic support policies of the government are at present supporting the current bull run. Usually for an apt selection, the fund's should be compared with their peer funds in respect of their 5 and 10-year fund performance. This will even provide a clear picture on how the funds have performed over the complete economic cycle.
3. NAV of the fund is not the factor to decide on the fund's cheap price:
NAV or net asset value of a fund should not be looked upon as a criteria for deciding whether the fund is cheap or not. NAV is determined by a host of sectors such as fund's market constituents and if a scheme is well administered then it may also grow higher rapidly. Likewise fund schemes that are into existence for long will have a higher NAV. Fund hence should be chosen considering the fund's past performance as well as the future prospects of outperforming funds as well as benchmark indexes.