In recent years, the surge in popularity of mutual fund investments among individual investors underscores the manifold benefits this financial instrument offers. In this extensive guide, we’ll delve into the intricacies of mutual investment plans, shedding light on various categories and providing valuable insights for beginners.
Understanding the nuances of mutual fund investments is crucial, especially when exploring diverse options such as mutual fund portfolios, investment strategies, and the quest for the best mutual investment plans.
Exploring the Basics of Mutual Investment Plans:
Mutual investment plans have emerged as a go-to choice for investors seeking flexibility and diversification. The key advantages that draw investors to mutual funds portfolios include the ability to initiate investments with minimal amounts (as low as ₹500), diversify across multiple instruments (stocks, debt, gold, etc.), engage in automated monthly investments through Systematic Investment Plans (SIP), and sidestep the need for a DEMAT account.
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Diving into Mutual Fund Categories:
For those new to mutual fund investments, understanding the distinct categories is fundamental. Broadly speaking, mutual fund investment strategies fall into three major categories: large-cap, mid-cap, and small-cap.
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Large-cap Mutual Investment Plans
Often regarded as the blue-chip of India, large-cap funds boast a market capitalisation exceeding ₹10,000 crore. Hemant Sood, Founder of FinDoc, underscores their safety and liquidity. These investment options are considered safer due to their robust financials, offering an expected annual return in the range of 12-15%.
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Mid-cap Mutual Investment Plans
Investing in mid-sized Indian companies, mid-cap investment options target becoming the fastest-growing entities, with aspirations to enter the prestigious Nifty 50 Index. While these mutual fund investments present a slightly higher risk, Hemant Sood suggests that the potential returns hover around 15-18%, making them an enticing option for investors seeking a balance between risk and reward.
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Small-cap Mutual Investment Plans
For those willing to tread the riskier path, small-cap funds allocate investments to companies with a market capitalisation of less than ₹5,000 crore. Due to their lower liquidity and occasional financial challenges, these investment options are considered highly risky. However, as the adage goes, higher risk often translates to higher returns, with expected returns from small-cap funds reaching around 20%.
Exploring the Diversity of Mutual Fund Categories:
Beyond the primary categories, investors can explore a myriad of options tailored to their preferences and risk tolerance. Multi-cap funds, flexi-cap funds, and value funds focus on undervalued companies, offering the potential for higher returns. Sectoral/thematic funds, dividend yield funds, focused funds, and Equity Linked Savings Schemes (ELSS) designed for tax savings further broaden the spectrum of best mutual investment plans.
Expert Tips for Mutual Fund Beginners:
As you step into the world of mutual fund investments, seasoned experts share invaluable tips to navigate these investment strategies.
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Commence with Index Funds
For beginners, experts recommend initiating the investment journey with index funds. These investment strategies, whether mutual funds or exchange-traded funds track the returns of market indices like Sensex and Nifty. This provides newcomers with a straightforward entry point into the world of mutual fund investments.
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Assess Risk Appetite and Diversify
Once comfortable with the basics, investors can gauge their risk appetite and consider diversifying into large, mid, or small-cap mutual funds. Experts emphasise the importance of aligning investment strategies with individual risk tolerance to strike a balance between potential returns and acceptable risk levels.
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Systematic Investment Plans (SIPs)
Financial organisations like Margadarsi Chit Fund underscore the efficacy of Systematic Investment Plans (SIPs) for beginners. With an entry point as low as ₹500 per month, SIPs enable investors to take advantage of the growth potential in the Indian stock market. This systematic approach to mutual fund portfolios is particularly beneficial for those who are new to the investment options.
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Maintain a Well-Balanced Portfolio
Amid the allure of short-term successes, experts at Margadarsi Chit Fund advise against getting carried away. Instead, they recommend maintaining well-balanced mutual fund portfolios with a mix of small, mid-, Flexi, and large-cap funds. For large-cap exposure, index funds are a prudent choice.
Final Words
Embarking on the journey of mutual fund investment plans requires a strategic mindset akin to placing bets on racehorses each season. Regularly reviewing mutual fund portfolios and making adjustments as needed is paramount.
With diverse investment options catering to various risk appetites and expert tips guiding the way, mutual fund investments provide a solid foundation for long-term investors navigating the volatile market terrain.
