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Investment plan:

First, decide the amount you wish to in­vest. Once you have done that, chalk out your investment outflow plan keeping in mind foreseeable expenses and your cash inflows from salary and other incomes. If you have in­vested in various mutual funds, distribute the payout over different dates of a month to help retain liquidity by pre­venting funds drain-out from savings account at one go.

Investment objectives of funds:

If you are a new investor, opt for large-cap diversified funds, making them the core of your portfolio. Although large-cap diversified funds underperform small-caps and mid-caps during market ral­lies, they provide a good cushion during market downturns. Avoid in­vesting in sector funds until you are fully sureof the prospects in a particular sector as an overall downturn in the sector can adversely af­fect the portfolio. Also,as one of the main ob­jectives of investing in a mutual fund is to seek diversification, investing in sectoral funds defeats that very objective.

MF asset size: 

The next thing you need to decide on is which mutual funds to invest in. Apart from reviewing the scheme or the objec­tives of a mutual find and comparing it to its peers, the total corpus or assets under manage­ment (AUMs) have to be compared. For a new in­vestor, Rs 500-crore AUM is a good starting point. Although there are several good funds with lower AUM, it is better to play safe when you are testing the wa­ters.

Age of the Fund: 

Ensure that the fund you invest in has been active for at least five years. A period of five years or more covers various market cycles including bull and bear phases, thus acting as a good bench­mark for comparing mutual funds. A relative­ly good performance by a mutual fund in a bear market is an indicator of good fund management.

Reputation of the Fund House: 

Again if you are a new investor, invest with reputed MF houses which have been opera­tional for a long time and have several top-ranking funds in their basket.

By Naveen Kukreja, Director, PaisaBazaar.com
(First published in The Financial Chronicle on 11 Nov 2015)

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