Intermediate

“Mutual fund investments are subject to market risks.” While the market risk in mutual funds is inevitable, the fund management team can mitigate it to a certain extent, with adequate research and analysis. Based on their risk tolerance ability, an investor may be classified as an aggressive investor, moderate investor, or a conservative investor. This article aims to discuss how to evaluate the risk profile of an investor, including various factors that affect it.  

While Indians have historically been investing in physical assets like gold, real estate, etc., the millennials are reflecting an increasing preference towards investing in financial assets. Mutual funds are steadily emerging as a preferred investment option, as also being reflected by steady monthly SIP inflows (Source – Association of Mutual Funds in India, AMFI). 

Monthly SIP inflows in mutual fund have managed to remain steady even during the recent volatile market condition. However, experts recommend that if such volatility and correction persist longer in the equity markets, it will have a significant impact on the investors. 2019 has been the year where investment in debt funds and Gold have generated better returns for the investors than the equities.

When we discuss mutual funds, we come across the standard warning when, “mutual fund investments are subject to market risks.” However, such risks can be classified into two categories – systematic risks and unsystematic risks. Systematic risks arise because of macroeconomic changes in the domestic and global economy. Such changes can include economic growth, fiscal deficit, current account deficit, forex movements, etc.

A diversified investment portfolio holds the key to long term financial prosperity. The investors must plan to allocate their investments across different asset classes such as equity, debt, gold, etc. Since the investors don't rely on a single asset class for their portfolio performance, the returns may be expected to be stable across market cycles. While equity renders the potential of higher returns over the long term, the debt investments may impart with stability to the portfolio. 

Systematic Investment Plan (SIP) has clearly emerged as preferred investment route for investing in mutual funds especially for investing in equity-oriented funds. This trend is visible from the relatively stable monthly SIP inflows. As per AMFI (Association of Mutual Funds in India) data, monthly SIP flows have continued to stay above Rs. 8,000 crores for the last 11 months and the SIP inflows during November 2019 were Rs. 8,273 crore.

Mutual funds have been instrumental in channelising the household savings into financial markets, as the investors need not have expert knowledge about the financial markets to invest in mutual funds. Investors may rely upon professional fund management for their investments in mutual funds. Further, with the availability of a wide range of mutual fund schemes, investments in mutual fund schemes can be made as per personal risk appetite and financial goals. 

The year 2020 has just started, and probably you have made your new year resolutions. But have you decided on financial resolutions for the new year to improve your financial habit and create wealth? Your financial resolutions should be more prudent and long term in nature.  

Retirement is often seen as the second innings of life. That is the time when you enjoy the luxury of time, while you do not have any official meetings to attend or timelines to meet. While it may be an extended vacation, you may be in for many surprises, if you have not planned for it. Retirement planning must be done prudently and systematically so that you don't have any financial constraints while planning to fulfil your pending dreams and aspirations after retirement.