Going Equity Shopping this Diwali? – 5 Things to tick off before Investing in a Mutual Fund

The festive season is around the corner and markets are getting back on track given the state of the current economic conditions. Businesses have historically boomed even in the worst times, and those who seized that moment are now reaping the benefits of a good mutual fund. So this Diwali if you plan on taking your bonuses into the market - here are a few things to keep in mind for your investment portfolio.

What’s at stake?

Say you have Rs. 50,000 with you and it’s mostly in a fixed deposit with your bank. What’s better than equity mutual funds, when the market has corrected around 30% of it in a month? But you need to think if you would need that money in the next 7-10 years, or if it would become your ‘in case of emergency break the deposit’ money.  If that is the case, then instant redemption funds are your best option. These are liquid funds that you can redeem in an instant. You can withdraw Rs.50,000 or 90% of your investment within 30 minutes. So, weigh your options and invest accordingly.

How much is your cover and is it enough?

Before you think about equity mutual funds of any kind, evaluate your financial status. Is my family’s health insurance enough or should I get a rider on that? Is my life insurance policy enough? Because as things are right now, you will need the liquid cash to cover your unforeseen medical expenses. Keep in mind that a cover of Rs. 1 -5 lakhs won’t cut it and most financial advisors would suggest keeping a minimum of Rs. 10 Lakhs as cover, while in some cases it even goes beyond Rs.20 lakhs. Markets may come and go, but you only have one life and so does your family. Ensure that everyone is well taken care of, even in cases of emergencies. If all this is crossed off your list and you still have money to dig for mutual fund investments, then hop on.

Additional Read: Understanding Mutual Fund Terminologies

Take calculated risks

Indian markets have fallen sharper and bounced back in record time before. Does this mean that this time, the exact same thing will happen again? Not necessarily. Every situation is different, and you must be prepared for one in which things don’t go well. The market will correct itself, but you can’t be sure when.  Keep the safety of your family in mind, and take only the risks that you can absorb. If you realize that you aren’t open to adventure, you might want to turn towards mutual funds which will give you the best of both worlds- growth and stability.

Do your own research

Before investing in equity mutual funds or any fund for that matter, check for four things –

1. The current risk profile

2. The scope of growth

3. The scheme policies

4. Your options for liquidity.

There are many funds to look at but some mutual funds like focused funds where the maximum investment cap is 30 stocks or a thematic fund that target a select sector with 80% of the asset in equity are viable options for your investment portfolio.

For example a thematic mutual fund in the healthcare sector right now is what everyone would bet on, and it’s the reality since the sector is booming right now. You could look at all these options or just go with an ELSS which not only becomes a tax-saving option but also a good future planning too - plus they have a minimum lock-in period of 3 years and the minimum investment in equities must be 80% of total assets.

Additional Read: Is ELSS a Wealth Creation & Tax-Saving Tool?

This festive season, choose your celebration

The market is going to revive sooner or later, as usual. But if you can’t afford to be patient, explore other options such as mutual funds. Mutual funds come with a wide variety of portfolio choices ranging from equity heavy to debt heavy and everything in between. If you think that you might need your funds urgently, you can opt for instant redemption funds. To know more about each of these options, track your portfolio, and receive analytical insights, all you have to do is download the Tata Capital Moneyfy app.