With wide variety of mutual fund schemes that are available in the market , any new comer might be confused looking at the innumerable options available to them . even after investing , many people will be skeptical whether the scheme selected by them is the right option or not .We mostly struggle to answer this simple query because the person often does not provide the necessary details.
For example, how do you tell whether aportfolio full of the best mid and smallcap schemes is ideal for a person without knowing his/her risk profile or investment horizon. If the person has a high risk tolerance, the portfolio would work for him. Similarly, since he is investing in schemes with higher risk element, she should also have longer investment horizon.
To begin with, you should identify your goals, investment horizon to achieve them and your risk profile.
Your should go for equity schemes if you have:
- a) long-term goals
- b) investment horizon of five years or more
- c) you have high risk appetite
Now that you are qualified to invest in equity mutual funds, find out exactly how much risk can you tolerate. In other words, are you a conservative, moderate or an aggressive investor? The answer to this question would decide what kind of equity mutual fund scheme can you choose to invest.
- a) If you are a conservative investor, you should invest in only equity-oriented balanced schemes or large cap mutual fund schemes.
- b) If you are moderate investor, you should invest only in largecap and multicap (they are also called diversified equity) schemes.
c) If you are an aggressive investor, you can pick up midcap and smallcap schemes. You can also add sectoral scheme if you have sound knowledge about the sectors
In short, choose schemes only if they match your risk profile. And you should be mindful of your risk profile even while adding schemes to your portfolio.
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