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Individual’s Rules for investing in mutual funds

Investing is a quite a complex exercise. But when it comes to the basic principles, they are amazingly simple. Anyone can become good investor and reach your goals just by following those simple and easy rules. Here is the list of few rules for making investment in mutual funds:

Be a long-term investor:
You should have a long term horizon. Short-term trading will make brokers rich and not investors and the income tax department will also be happy. Mutual funds are diversified and therefore, their gains and losses are likely to be lower than what it would be in case you are investing in an individual security. However, major fluctuations are highly uncommon in mutual funds. So what make sense is to leave your capital in a mutual fund for a long time and let it compound. So the key point is Buy and Hold. It also requires to you do a reality check on yourselves so that you can define your goals and priorities before entering the market.

Start Early:
When you invest in the market is more important than the market timing. Always enter the market with long term thinking. Do proper researches before investing set your priorities and goals, ascertain your risk profile. Also very importantly you should keep yourself abreast with the daily market news. One should not do impulsive purchase allowing emotions overpowering the sense of reason.

Know yourself and then What You Are Buying:
The first step towards achieving your goals would be to know yourself, your risk appetite and accordingly make the investments. Once you have discovered yourself, explore the market and find out the kind of funds available in the market. Firstly, get a hang on the style and strategy followed by a fund by reading the available material. This will help in diversifying the portfolio and also in assessing potential risks. In general, large-cap value funds are less risky than small-cap growth funds.

Be A Disciplined Investor:
Once you’ve chosen some funds, you may stick with them. It is not necessary that one should always go with the tide. Even the unpopular groups tend to outperform in subsequent years. Investing a regular amount of money at regular intervals may add a good value to your portfolio. Make a systematic investment plan which in all probability likely to offer reasonable returns.

Know How Much You Pay:
There is one famous saying that Money saved is money earned. So it’s always better to pay less than it is to pay more. Expenses are very important with your larger-cap, lower-risk funds, and less critical with small-cap funds and other higher-risk categories. You can afford to be lenient with the expense of a small-cap or a sector equity fund. Actually, the strength of the mutual fund lies in its simplicity. Don’t follow the bandwagon.

Categories:   Mutual Funds

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