MF investment: Look before you leap!

The year 2020 saw the best and the worst of the equity market. In the first quarter (Jan-March), there was a massive fall in the equity market. In the next nine months, however, the market saw a V-shaped recovery as the key equity market indices gained more than 70 per cent. This gain in the equity market led to profit-booking by many mutual fund investors. Besides, some of them have started their journey of investing now. For example, in the month of December 2020, equity dedicated funds were able to mop up Rs 26,000 crore against Rs 20,000 crore in the same month last year.   

You should not be swayed away by the performance of the equity market. Check the following points before investing in a mutual fund: 

Read the offer documents: The offer documents for mutual fund schemes are now bifurcated as ‘scheme information document (SID)’ and ‘statement of additional information (SAI)’. Each scheme has a SID whereas SAI is common for all schemes. While making investment decisions, you, as an investor, are expected to peruse the SID and SAI along with the existing key information memorandum (KIM). These documents help you to understand about the fund, its objective, investment strategy, and other important aspects necessary for making investment decisions.   

 Direct or regular plan: Investors, who prefer to make applications for mutual fund schemes without a distributor or broker, must select a relevant column. They should opt for the direct plan as it has a lower expense ratio along with the tendency to generate better returns in the long-run.   

Invest intelligently: Avoid herd mentality while buying or selling into mutual fund schemes. Make investments that do match your risk-taking appetite and investment goals. You should be wary of concentrating your mutual fund portfolio into one asset class. In fact, prefer diversifying it into various scheme profiles.