Are you a new investor who is making their way through mutual fund investments? Mutual funds are an excellent investment vehicle for new investors who wish to generate wealth or preserve their wealth. Let’s understand the do’s and don’ts related to mutual fund investments for first-time investors.

What should a first-time investor in mutual funds do?

You must lay a financial plan and clearly define the financial objectives and goals that you wish to attain through mutual funds. Your goals must be SMART – Specific, Measurable, Achievable, Realistic, and Time-bound. This will help you deduce the required funds needed to achieve these goals and the appropriate time horizon for your investments. This will ultimately, help you choose the right type of mutual funds and asset classes for your investment portfolio.

Next, you must understand your risk tolerance. If you get sleepless nights and shoot up your stress levels on the slightest hints of collapse in the markets, then you may be investing beyond your risk appetite, and you might consider bringing a notch down. You can take the services of a financial expert or advisor who can help you understand your risk appetite. Next, you must ensure that the mutual fund that you have chosen aligns with your risk profile, investment horizon, and financial goals.

Finally, choose the right investment tenure for your mutual fund investments. You can choose between two options – systematic and automated SIPs (systematic investment plan) or lumpsum investment. Whether you choose to invest in SIP or lumpsum entirely depends on your investment portfolio, availability of funds, whether or not you receive regular inflow of cash, risk profile, and other factors.

Finally, do not forget to review the performance of your funds on a regular basis. You must also consider the tax-aspects of your investments and the impact of inflation on your investments. This will help you give a truer picture of your investments. You can use a mutual funds calculator for the same.

What should a first-time investor in mutual funds not do?

You must look at mutual funds as an investment vehicle that will miraculously generate wealth for you in a short span. Patience, perseverance, and discipline are some important qualities that an investor must have. Also, you must not try to time the markets. Sure, you may have heard experts advising that you must ‘buy low and sell high’. But, this investment strategy is easier said than done. Thousands of investors try to become rich overnight by applying this strategy only to lose a substantial amount of their hard-earned money. Rather, you must consider the approach of time in the markets. Basically, allow your mutual fund investments to grow to their full potential by staying invested for a prolonged duration.

Next, you must not be drawn towards a mutual fund scheme solely on the basis of their past performance. The past performance of a scheme is a not a good indicator regarding their future performance. Rather you must analyse their performance across various market cycles.

You must not blindly follow or trust anyone or any information. This will only cause a panic which might lead to taking wrong investment decisions. As much as possible, investors must not let their emotions have the best of them.

All in all, you must do your research and trust on your research and your investments. It is a good idea to link your long-term goals to mutual fund investments so that you do not get tempted to exit the markets soon. Happy investing!

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