Stock Market is just a term which evokes a spectral range of emotions in numerous people. Some strongly feel it’s only gambling, others feel it’s a sure fire way to lose money. A few obtain a high on trading in stocks all day long. Some utilize it wisely to boost their wealth. The fears associated with the stock market came down significantly since the first nineties and now most people feel comfortable purchasing the stock market. The article is specific for Indian investors though the majority of the ideas expressed are universal.
Buying the stock market requires careful study, constant review and quick decisions. Cherry picking an investment and keeping yourselves กองทุนบัวหลวง updated about the business and timing your buying and selling can occupy a significant part of your time. This really is where the Mutual Fund industry can lend you their hand. A Mutual Fund is managed with a Fund Manager and a group of analysts who take their time and energy to study the stock market and invest your money. It saves you from all of the hassles of stock market investing and you might also need somebody to take care of your money.
The Mutual Fund industry has come a long way since its introduction in India in the first 90s. Mutual Funds provide a number of options based on your risk profile to get high tax effective returns. Having said that, I would caution readers that purchasing mutual funds also needs a little bit of effort from your side. Engaging in the incorrect mutual fund at the incorrect time can destroy your wealth. The risks associated with purchasing any asset class [Stocks or Gold or commodities or bonds] are applicable to mutual funds also. For the more conservative investor, mutual funds offer experience of fixed income instruments through fixed maturity plan (FMP)/debt funds wherein your cash is committed to debt instruments. FMPs/Debt funds tend to be more tax efficient than direct investment in FDs or bonds/debentures etc. I give below some points that needs to be taken into account while purchasing mutual funds.
a. If you’re taking a look at investing money for the temporary (1-3 years) and want the very best tax efficient return then choose Debt funds/FMPs.
b. If you would like experience of stock markets then understand that stock market returns can be performed only over the long term as markets usually see- saws by having an upward bias within the long term. So you might have to hang in there for over 5 years. Do not check your NAV(Net Asset Value) everyday and feel excited or melancholic because of the erratic movement.
c. There are more than 30 fund houses (AMCs) offering significantly more than 700 schemes. Choose the AMCs which were around for quite a long time (5-10 years would be a good metric). Do not diversify an excessive amount of and adhere to good fund houses. The important points of fund houses can be found in the web site of Association of Mutual Funds of India. You can even obtain the rating of each mutual fund on this website. Check to see if the AUM (Assets under management) is high; this ensures that the Mutual Fund has the flexibleness to take a hit just in case 1 or 2 firms that they had committed to enter into trouble.
d. Bear in mind that past performance isn’t helpful information for future performance. Go for consistent performers.
e. Go for New Fund Offer [NFO] only during an important downturn as this enables the fund to get involved with stocks at lower prices. For Debt funds choose NFOs when interest rates start peaking. Do not enter into an NFO because you are swayed by the smart ad in the media. Usually NFOs focus on the flavor of the summer season to tempt you [Commodities, Green Energy, Emerging markets etc].Some may play out; some will die an all-natural death. So exercise abundant caution.
f. The most effective time and energy to start an SIP is when the market starts showing a downward trend and the worst time and energy to panic and stop an SIP is once the stock market adopts deep decline. Actually this is the time when the actual investors rub their hands in glee. So you ought to try and increase your SIP amount when the market is really down and then once the market bounces back you can go back to your regular amount. Fix a foundation and set a target – e.g., for every single 100 point fall in Nifty index increase SIP by Rs. 1000 and reduce exposure similarly as the market bounces back.
g. Do not expect extraordinary returns. On a long term basis mutual funds give an annual return of 12-15%.
h. Perform a review one per year and check from sectors that you feel have peaked out.
i. It is advised to have SIP in a index fund/exchange traded fund (ETF). An index fund invests in firms that form this index. As an example if the index fund is on the basis of the Bombay Stock Exchange (BSE) Sensex, then it invests its funds in the businesses which make up the index and the NAV tracks the BSE Sensex. This fund will will have a return that closely mirrors the return of the stock market. This is a very safe way and protects you from individual gyrations in stock price of a business or sector. The stock exchange will promptly replace a business from the index just in case it starts underperforming and your fund does the same. So you are always assured of a return very near to the market return.
j. Do not confuse an insurance product which invests in the stock market with a mutual fund. They’re two many different products. Insurance products have high charges and give far lower returns than the usual mutual fund.
Mutual funds are ideal for people who do not need the full time or patience to take the effort necessary for successful stock picking. They give the investor an extensive selection of experience of different asset classes and sectors based on risk profile and if chosen wisely can offer extremely satisfying returns to boost wealth.