Mutual fund categories to choose from while starting your investment journey

One of the biggest mistakes investors can make while starting their investment journey is to look at past returns. Here’s a checklist to follow if you’re investing mutual funds for the first time.

According to experts, the timing of the market is going to be difficult for new investors at this time. Also, he says that if investors have a good market experience initially, they stay invested for a long period.

Harshad Chetanwala, a SEBI registered investment advisor and co-founder of MyWealthGrowth, believes that it is good to start the mutual fund investment journey with a portfolio of well-established companies. “A gradual approach to investing can work well at present, hence, SIP (Systematic Investment Plan) is the best way to start in any market condition. Even if you have a lump sum amount to invest, you can invest 25% now and the rest can be invested in the coming three months or through a six-month SIP.

With the market hitting an all-time high, Chetanwala suggests that first-time investors should consider investing in index or large-cap funds. “They should avoid small-cap and mid-cap funds at this stage as they are more volatile,” he said.

According to Kirtan Shah, Chief Financial Planner, Sykes & Ray Equities (I) Ltd., if one wants to do SIP ₹10,000, he can look at an index fund, a flexi-cap fund and a value fund, which will give the right kind of diversification.

“Historically, at such a high valuation, Price has done a really good job. So if someone is a beginner then he should keep some things in mind. Don’t try to invest in schemes they don’t understand. Therefore, one can avoid thematic or regional themes, which are the flavor of the season.”

Despite the expensive valuations, experts say that for young investors who are new to the market, there is no point in investing outside equities. However, the investment horizon should be at least seven to 10 years.

For Nishith Baldevdas, Founder, Shree Financial and SEBI-registered investment advisor, a balanced profit fund would be the best strategy for investors venturing into the market right now.

“It is dynamically managed and also protects downsides. Ever since Sensex hit 46,000 level, we are suggesting asset allocation option. Newcomers are mostly coming to see returns in last one year. However “They haven’t seen the downside, which can be more painful,” he said.

Also called a Balanced Advantage Fund, or Dynamic Asset Allocation Fund, the equity allocation ranges between 30-80% depending on market conditions.

“Even if investors have long-term goals, we are starting with BAF as we will change strategy once the valuations become attractive and less expensive. At a time point, we may move to mid-cap or large-cap,” Baldevdas said.

A good investment strategy for freshers at this point of time would be to stick to the basics of investing, stay away from the flavor of the theme of the season.