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How do I choose the right MF for my risk profile?

By Finserv MARKETS - Aug 1,2019
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How do I choose the right MF for my risk profile?

June 2019 has been the 61st consecutive month when the mutual fund industry saw a rise in the total number of folios, clocking Rs 8.38 crore as of June 30. According to the Association of Mutual funds in India( AMFI), the number of folios under Equity, Hybrid and Solution Oriented Schemes, with maximum investment from retail segment stood at 7.56 crore(1). These numbers area testament to the growing awareness amongst investors as well as their ability to take market- related risks in their stride. Still, it helps to know the right fund as per your risk profile. Mutual Funds, available on Finserv MARKETS, have their investments managed by professionals with considerable expertise who go through a repeated analysis of markets and economy to pick the best opportunities for you.

Low risk Funds

For those on the conservative side, Liquid MFs or ultra short term funds, while giving slightly low returns of up to 6 per cent per annum, help keep money safe from market fluctuations. Liquid funds invest in securities with a residual maturity of not more than 91 days, while, ultra short term funds invest mostly in very short-term debt securities and a small portion in longer-term debt securities. If you are looking to earn returns more than an FD in a bank, Fixed Maturity Plans could help. These close-ended debt mutual funds invest in debt instruments with less than or equal to the maturity date of the scheme which can be redeemed by investors.

Low to moderate risk funds

Risk-averse individuals can also put their money in Income Funds which again outdo FDs in terms of returns. They distribute their money in a mix of bonds, certificates of deposits and securities among others. Fund managers keep track of prevailing interest rates to ensure a creditworthy portfolio.

Large-cap funds, a kind of equity mutual fund, are by far relatively less risky than their other counterparts. They invest in big companies which are established players in their field and have a good market capitalization and hence are safe to invest. These funds are likely to offer modest returns as they carry relatively less risk. One could also look at Debt-oriented hybrid funds which invest mostly in debt and a small part of the corpus in equity to provide extra returns. It is advisable to invest in the funds above for three years or more.

Short term mutual funds invest mostly in debt securities with an average maturity of one to three years and work well in a climate where short term interest rates are high. Dynamic Bond Funds invest across all classes of debt and money market instruments with varying maturities. Their actively-managed portfolio varies dynamically with the interest rate view of the fund manager.

Moderate risk funds

For those looking for moderately higher returns, there are a host of options available on Finserv MARKETS to choose from. Investing is fairly easy. Fill a common application form along with an ECS mandate form. Either fill the SIP registration form for recurring payments or the lump sum form for a one-time payment.

Equity-oriented hybrid funds invest in both equity and debt and hence are less volatile than pure equity funds. The debt component is at least 65% of the corpus and helps provide stability in times of volatility. Diversified MFs invest across market capitalisations, as per the market view of the fund manager and hence while riskier than large-cap funds, their risk quotient is still moderate. For those investors looking to enjoy the benefit of saving tax with investment, ELSS, or Equity Linked Savings Scheme are a boon. These come with a three-year lock-in period and are eligible for tax deduction under section 80C of the Income Tax act.

High-risk funds

For those with a high-risk appetite too there are funds such as Midcap mutual funds that invest mostly in medium-sized companies or small-cap funds that invest in small companies. Since these companies are still growing, they have little or moderate market capitalisation and carry more risk. Sector funds invest mostly in a particular sector or along the lines of a defined theme, like say, pharma, infrastructure, banking etc. It is important to have due knowledge before putting your money in such MFs and a very small exposure is advised.

By now you must have some idea of risk associated with different classes of funds. Finserv MARKETS’ risk profiler form further helps your manager get an overview of your risk-taking capacity. With nominal transaction costs, your investments are staggered across a vast spectrum of industries thus giving you a diversified portfolio and reducing your risk. So go ahead and invest in a mutual fund to build your wealth.

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