Skip to main content

Risk taking ability should decide exposure to equity

Invest Mutual Funds Online

Download Mutual Fund Application Forms

ARE mutual funds among the most convenient vehicles to invest in equity markets? Not necessarily! Age is one of the primary criterions for investing in mutual funds. What matters more is your ability to understand what level of risk you can comfortably take at different times in your life. And finding a mutual fund that aligns with that level of risk hence, becomes more critical.

Today, mutual funds are able to serve the needs of both, an investor who is very conservative and wants minimal risk, and also who can take risk aggressively.


Of course, like with anything in life, the likelihood of higher returns is greater when you take higher risk and vice-versa.

For the very conservative investor, one can even start by investing in money-market funds which are less volatile and tends to offer better liquidity, compared with traditional investment option. On the other end of the risk spectrum are pure equity funds, that may be volatile in the short-term, but tend to offer much better returns over a longer investment horizon, compared with money-market funds.

So how do you decide what share of your investments should be in equity funds? There is an old thumb rule of investing which says that 100-minusyour-age can be your percentage allocation to equity mutual funds. The rest can be in funds with lower risk such as money market and debt funds.

However, with average life expectancy in India growing rapidly to 66 years in 2010, compared with 58 just 20 years ago, this rule of thumb now often gets challenged. In over two decades that I have been associated with advising clients, I have seen investors at the age of 70 feeling comfortable investing a greater share of their assets in equity funds, and seen young investors in their 30s favour lower-risk debt funds. In either case, one can argue that both investor types challenged traditional wisdom that the younger you are, greater the risks you can take.

What it implies is that both investors had a more developed appreciation of their respective financial goals taking into account the time they can stay invested, their experience with mutual funds as a category, the return they need on their capital and the risk they were willing to take to achieve their goals. All of the above, when combined, aims to make a comprehensive and confident investment decision.

It is also well known globally that mutual funds are amongst the most convenient vehicles to invest in equity markets.


The Indian regulator is keen to enable increased ownership of mutual funds beyond just the metros to the common man right across the length and breadth of India. This will not only help develop the Indian capital markets, but equally aims to give a more direct route to participate in the growth of corporate India and the Indian economy at large, thereby growing their wealth.

Regardless of their age, in my career, I have met investors who have never in vested in mutual funds, to those who actively invest in them. The former often hesitate because they do not know how to choose a fund from over 2000 choices that exist today, while the latter is often hassled with the administrative burden of keeping track of the performance of funds, filling subscription and redemptions forms, writing cheques and reconciling their bank statements.

To address both their needs, a new category of mutual funds has now begun to se are what are called multi manager funds. These researched funds aim to invest in the best of breed funds across the industry, thereby, eliminating the burden of selecting funds for the investors. To sum it up, age is but just one factor to take into account when investing in mutual funds. And there is never a substitute for gaining firsthand experience.

--------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

 

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

 

Best Performing Mutual Funds

    1. Largecap Funds:
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    3. Mid and SmallCap Funds
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    4. Small and MicroCap Funds
      1. DSP BlackRock MicroCap Fund
    5. Sector Funds
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    6. Gold Mutual Funds
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...
Read more

Equity investors should track market developments

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...
Read more

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...
Read more

Birla SunLife Frontline Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   BSL Frontline Equity Fund   Strategy The fund's investment strategy is in line with the BSE 200. This way its allocation is sprinkled across the sectors which brings in stability. Allocation to large caps is close to 75 per cent while market gyrations of last 2 years have seen its allocation to mid- and small-caps come down. Though the fund has the mandate to pick stocks from outside the ambit of BSE 200, it has largely stuck with the benchmark with just 10 to 20 per cent of the investment going outside it over the past 5 years. Sector-wise allocation though is mostly in proportion to the benchmark.   Its dominant sectors include automobiles, FMCG, financial, technology and energy. Banking and FMCG performed well last year which is reflected in performance. Its stock p...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now