Wealth Guide: 5 Mutual Funds, SIP Strategies to Keep in Mind When Investing

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

Currently, the markets are in a special position. There is volatility and fear due to global geopolitical tensions, rising crude oil prices, rising inflation and expected federal rate hikes.

Watch the Zee Business live stream below:

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

Vaibhav Agrawal, SVP Research, Angel One Limited breaks down 5 strategies a mutual fund investor should consider when investing:

1. Stay committed to SIPs

Depending on the state of the market (bearish or bullish), it is never recommended to stop or postpone SIPs as they tend to offer advantages of averaging the cost in rupees over a long period of time. Buying more units in a falling market and fewer in a rising market reaps the benefits of both trends.

2. Diversify your investments

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

The most commonly used diversification approach is to invest in multiple fund classes that can balance the risks of each other. For example, most seasoned investors take on some risk through equity funds and manage it through some fixed income debt funds.

3. Don’t time the market

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

Debt securities generate interest income, which makes them favorable to the market, while equities thrive in bull markets.

An effective way to do this is to invest in dynamic asset allocation mutual funds that follow proven strategies to adjust debt and equity allocation to prevailing market conditions.

4. Track market corrections

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

An investor should follow market movements to make additional lump sum investments when markets experience corrections. Such an approach could help increase overall mutual fund returns.

5. Avoid exposure to sector funds

Investing in sector funds entails concentration and sector risks. Therefore, as a general rule, a retail investor should invest in diversified funds to avoid the above risks.

Conclusion

Investing in mutual funds through the SIP route is a great way to build wealth over a long period of time. One can follow the best practices mentioned above to get the most out of mutual fund investments.

(Disclaimer: Opinions/suggestions/advice expressed here in this article are investment experts only. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)

Dolores W. Simon