Mutual funds are for everyone. Investing in schemes can help you achieve your financial goals. Here are some factors to note to ensure that you gain the most from your investments.

Identify needs and goals

Ask yourself the question — When do I need money and for what purpose? List down your financial goals and when they are likely to materialise (daughter’s higher education after six years, purchase of a house after 10 years, for example), and how much money you will need for the same. The answer will help you arrive at the time frame for your investment — short term, medium term or long term.

Match your investments to the time horizon of your goals. For your long-term goals such as retirement or children’s education, go in for equity funds which, even though volatile in the short term, are likely to give you the growth you are looking for. Similarly, for short-term goals, invest in money market or cash funds as they tend to be more stable and predictable.

Understand risk capacity Will you be comfortable with fluctuations in the value of your investment? Or would you prefer to settle for lower returns, without ups and downs? There is no point in investing your money in equities and spending sleepless nights due to short-term volatility. But at the same time, you need to ensure that your investments provide you returns that will be adequate to meet your long-term goals.

Required rate of return Your required rate of return depends on your financial goals and the time you have to achieve them.

The later you start, the higher will be your required rate of return. A delay of five years will mean your required rate of returns need to be double the levels than if you start now.

Disciplined investing works Systematic investing offers investors an easy as well as effective way to participate in equity markets, as it tends to reduce the impact of volatility on investments and also inculcates much needed discipline.

Investors need to keep some key parameters in mind while making their investment decisions.

The key parameters to monitor include: the track record/experience of the fund house; stability of the investment team/investment process; consistent performance across market cycles and relative performance among its peer group (across time periods).

Investments in specified funds would qualify for a tax benefit under Section 80C. Dividends distributed are tax-free in the hands of investors.

Stick to your plan but review it regularly Before making the investment decision, evaluate how it affects your current asset allocation plan. As time passes by, your life stage changes and so do your needs as well as income.

You need to periodically monitor and review your investment.

The author is MD, Local Asset Management, Fixed Income, Franklin Templeton India

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