Every investment strategy ought to begin with a plan. Work with your financial advisor who will help you define your financial goals. Once you are clear with your goals, then you can hand-picked the type of investments that make sense for your portfolio. The good news is that it’s never too late to curate and implement a personal investment plan and start creating a nest egg for your future.

What to expect when I invest in mutual funds?

All investment options carry some level of risk and the markets are impacted by several forces such as political events, consumer emotions, earnings, and even natural disasters. Traditionally, stocks have enjoyed the most vigorous average returns over the long term (above 10% per annum) followed by corporate bonds treasury bonds and cash/ cash equivalents. The compromise is that with this higher return comes a higher degree of risk. Depending on your risk profile, choose the best option from different types of mutual funds.

What is risk tolerance? And how do I evaluate mine?

Risk tolerance comes down to the amount of risk you are willing and able to undergo for your investments. A good rule of thumb that you can follow is if you’re up late-night thinking about your mutual fund investments and dreading that a down market can bring your portfolio down way too much, then you may be carrying a lot of risks. On the flip side, if you’re concerned that you could be missing out on earning significant profits on your investments, then you might be too conservative with your mutual funds. Work with a financial expert to gain a more quantifiable measure of your risk profile, investment horizon and financial goals and invest in mutual funds online accordingly.

Are investments in mutual funds just for long-term investors?

Investing in mutual funds is both for the long term and short term investors. But most of the money we save up is not going to be needed until we stop earning – i.e. after 20 to 30 years later. Over this period, smart investors opt for equity mutual funds based solutions to beat inflation. While stocks have a bad reputation for great fluctuations, this is prominent only in the short term duration and over the long run, investors have historically beaten the inflation handsomely.

How can I minimise my risk?

The best way to minimise risk is to make sure that your investments are well diversified. Diversification is a method where you invest your portfolio in various kinds of assets, such as bonds, stocks, and cash, etc. Diversification is one of the best ways to achieve significantly higher returns with a lower rate of risks.

What is the most important rule of investing in the stock market?

Invest money in stock market only if you have a high risk appetite. One invests in mutual funds for the capital appreciation it offers, but do not go all in. Do not invest your entire savings and emergency money in the stock market. Going all-in will increase the likelihood of you being emotionally attached while making investment decisions which can hamper your mutual fund investments.

Invest in mutual funds after carefully analyzing your portfolio. Remember, stock market does not work on the principle of ‘One size fits all”. Happy investing!

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