It is part of the mandatory statutory disclaimer provided by mutual funds: the past performance may or may not be sustained. However, some lessons learnt in the past (in 2019, to be precise) may serve you good even in the New Year. It really doesn’t matter whether the market remains the same or it surges ahead with a broad-based rally as anticipated by most participants, this lesson may remain relevant to mutual funds looking to create wealth.

Before sharing the secret recipe, take a look at the frequently asked questions in 2019 in our
Ask the Expert section. As you can see, most of the questions are regarding the suitability of schemes; many readers can’t fathom why their schemes are going down; some others want to know whether they should continue with the schemes they have invested a few months ago, or two years ago, at the most.

What is the common thread you can find among them: these investors got into schemes that were not suited for them. Why? The reasons are many: some did not have any clue about mutual funds or investing; some did not know the basic features of their schemes or the sectors/segments they belonged; some of the schemes did not match the risk profile…

What does that lead us to: we should do our homework before putting in our hard-earned money anywhere. And if you can’t do the homework on your own, hire the services of a seasoned mutual fund advisor. Yes, we know that is an unpopular advice in these times of DIY investing. However, trust us. We can vouch for this since we deal with countless queries from our readers daily.

Okay, that was the hard part. Now, let us move to the basics. There is only way to choose an ideal mutual fund scheme for you. It should match your investment objective (financial goal), investment horizon (time in hand to achieve goals), and your risk profile. As you can see, almost all the queries above dealt with the absence of one or more of these factors.

Once you identify these factors, your selection process becomes a little easy. For short-term goals, you should always choose safer options like bank deposits and debt mutual funds. Do not, that is in capital letter, ever invest in an equity mutual funds to meet your short-term goals. Equity is extremely risky and volatile in the short term. You will lose money if you bet on equity for a short period.

That brings us to your long-term goals. Equity schemes are ideal to build corpus to meet your long-term goals because only they can offer your inflation-beating better post-tax returns over a long period. However, you should never bet on equity if you do not have a high risk appetite and can’t handle the volatility typically associated with this asset class.

Moreover, always choose a scheme in the right debt/mutual fund category. YOu can ensure this by matching the scheme with your investment objective and risk profile. For example, if you are investing for a few months, you should bet on ultra short duration schemes. If you parking money for a few days or weeks, you should opt for liquid schemes. Similarly, if you are a conservative equity investor who abhors too much volatility, you should avoid mid and small cap schemes and stick to large cap mutual fund schemes. If you have a moderate risk profile, you should invest in a multi cap mutual fund scheme.

Note, these basics would prove extremely significant in 2020 for a variety of reasons. One, the future course of the economy is still uncertain. Unless there is a dramatic turnaround, you are unlikely to see a broad-based rally in the stock market. Of course, many pundits are sure about it and they are also certain about a revival of mid cap and small cap stocks. But don’t count on it. No amount of liquidity can prop up a market forever in the absence of strong economic fundamentals.

That means, you should play it extremely safe in 2020. And sticking to basics is one of the sure-shot ways to do it.





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