Investing in Equity Mutual Funds

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Mumbai: Equity is considered to be the most volatile asset class, but it also has the potential to give you double-digit returns if the market fares well. The markets, after recent consolidation, have managed to claw back to the crucial 17,000 mark.

If you are an investor who does not have the time to track markets daily, then equity mutual funds can be your go-to place. Experienced fund managers assess the risk-to-rewards ratio and invest in various stocks. But which one should you pick? What are the factors to consider while investing in equity MFs? Kaustubh Belapurkar, Director of Fund Research of Morningstar Investment Adviser India guided our viewers on the same on The Money Show.

He said that before investing in an equity MF, one must consider multiple factors, such as return expectations, risk appetite, ideal asset allocation mix, the investing style of the fund, and investment time horizon, among others. He added that investors can either craft one portfolio for all goals or create a goal-based portfolio strategy.

The most popular equity MF schemes are large-cap, mid-cap, flexi-cap and the ELSS (equity-linked saving scheme) funds.

Belapurkar advised that historical returns should only be used as a guide, not as a guarantee. He added that return expectations must be realistic and diversification of holdings must be done scientifically. He suggested opting for funds with varying styles, thus reducing the holding similarity and hiking diversification. In most cases, four to eight equity funds should suffice.

Guiding investors in navigating the funds best suited for them, Belapurkar noted that sectoral or theme-based winners keep rotating on a yearly basis, which is why they should not be chased for results. What’s more crucial is the entry and exit time in any sector. He recommended investing in diversified equity funds and index funds. Adding to that, he said that if you do want to make a tactical allocation, you must limit it to 10% of your overall portfolio, with no greater than 5% in any them or sector.

On a closing note, he advised investors to do their own research and consult a professional advisor before making any investments.

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