Hello Readers!
Equity mutual funds have been performing low since the market has started showing corrections, due to Corona Crisis. However, there are funds like Large-cap Funds that have performed well in this scenario. Investors who have invested in Equity Mutual funds are suffering from the fear of losing all their money. Their fear is resulting in the panic selling of their funds, and ultimately, they are losing the main objective of their investment in Equity mutual funds.
Every investor who plans to invest in equity mutual funds or already invested in equity mutual funds knows that it is meant for long term goals. The span of long-term investment varies from investors to invest as per their goal requirement and their risk, for some it is 5-7 years, for some, it is 5 years while others take it for more than 7 years.
Well, irrespective of what definition investors think of long-term investment, it is advised to the investor not to do three things when they have linked their long-term goals with Equity mutual funds.
Through this article, we are going to discuss the three don’ts for investors, when their long-term goals are linked to Equity Mutual Fund.
CHASING RETURNS RATHER THAN YOUR GOAL AMOUNT
Investors are advised to select mutual funds schemes whose investment strategies are compatible with their risk profile and their financial goals. Choosing a fund that gives you the required amount after a fixed time says Rs 50 lakhs after 15 years for one’s child education is different from chasing 30% returns from equity mutual funds.
An investor who looks for funds that will give them a return of 30%, generally ends up chasing the last year's return of the fund and often miss the high risk that the fund has taken to outperform the benchmark and get higher returns.
We believe that a normal 12% growth rate going forward is a reasonable expectation from equity mutual fund as an asset class when you are going to invest in that fund for the long term. This point should be kept in mind at the time you plan for your goals.
NOT HAVING YOUR ASSET ALLOCATION IN PLACE
Investing in Equity mutual funds means planning for your long-term goals, but what about goals that might come in less than five years! Investors are advised when they plan to invest in Equity mutual funds, along with that they should also plan for their short-term requirement or emergency need, in short-term Debt funds. If they do not so, they are only going to increase their anxiety and put their financial well-being, at risk.
So, in order to be financially fit, it's better, allocate the proper amount in fixed income-based securities like Debt Funds, and most importantly, have an emergency fund in place that has at least 4 months of your income.
NOT KNOWING WHEN TO TAKE YOUR MONEY OUT FOR A BIG LONG-TERM GOAL
In Equity mutual funds not only investment, but your redemption should also be planned in order to save your corpus from being the victim of the market volatilities. Equity gives inflation-beating returns on the cost volatilities. Just like the market goes up for years, they can also go down for months or years.
When it comes to deciding when to redeem your investment from Equity mutual funds, it is advised to investors, when they are 2-3 years near reaching their goal, they should start systematically moving their money from equity to fixed-income funds.
This can be done by the Systematic Withdrawal Plan (SWP). Through SWP, you can smartly move out of your Equity Mutual Funds, in a phased manner by timing your withdrawal, when you are nearer to reach your goal.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., for details, we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).