Mutual fund categories for the first-time investor


Mutual fund investing requires patience understanding your risk appetite. Choosing the right scheme today can be a daunting task given the options available the market conditions.

The biggest mistake investors could make while beginning their investment journey is looking at the past returns. Here is a checklist to follow if you are investing in mutual funds for the first time.

According to experts, new investors will find it tricky to time the market. Also, they say, if investors have good experience in the market initially, they tend to stay invested for the long-term.

Harshad Chetanwala, a Sebi-registered investment adviser (Sebi-RIA) co-founder of MyWealthGrowth, believes it is good to begin the mutual fund investment journey with a portfolio of well-established companies.

“A gradual approach to investing can work well at present, hence, SIPs (systematic investment plans) are the best way to begin in any market condition,” he said.

With the market at an all-time high, Chetanwala suggests that first-time investors should consider investing in index or large-cap funds. “They should avoid small-cap mid-cap funds at this stage as these are more volatile.”

According to Kirtan Shah, chief financial planner at Sykes Ray Equities (I) Ltd, if someone wants to do an SIP of 10,000, he or she can look at an index fund, a flexi-cap fund a value fund, which will give the right kind of diversification.“Historically, at such high valuations, value has worked really well. So, if someone is starting, they should not try invest in schemes they don’t understand. So, thematic or sectoral themes that are flavour of the season, can be avoided.”

Despite pricey valuations, experts say it doesn’t make sense for new investors to invest outside of equities. However, the investment horizon should be of at least seven to 10 years.

For Nishith Baldevdas, founder of Shree Financial a Sebi-RIA, a balanced advantage fund (BAF) would be the best strategy for investors coming into the market right now.

“It is dynamically managed protects downsides as well. Ever since the Sensex hit the 46,000 level, we have been suggesting the asset allocation option. Newcomers are mostly coming in looking at the returns over the past one year. However, they haven’t seen the downside, which can be much more painful,” he said.

BAFs, also called dynamic asset allocation funds, have equity allocation between 30% 80% depending on market conditions. “Even if investors have long-term goals, we are starting with BAFs, because we will be changing the strategy tactically once the valuations become attractive less expensive. At that point, we might move to mid-cap or large-cap,” said Baldevdas.

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