3 mutual fund resolutions for 2017

By Morningstar |  13-12-16 | 

The New Year is around the corner. For many, a ritual practiced at this time of the year is to make resolutions. In keeping with tradition, we present a checklist of just three resolutions for mutual fund investors, which will hold them in good stead in 2017.

  1. I will make informed choices.

Investors must take responsibility to make informed choices. Don’t get swayed by the marketing spin of fund companies – despite how creative they are. Even if your adviser or distributer recommends a fund, you don’t have to blindly oblige. Question them. See if their reasoning or logic is convincing. Conduct your own research if you want to.

Add funds to your portfolio based only on solid rationale. Is the fund suited to your risk profile? Is it providing the right bent to your portfolio? Do you believe it is a needless addition? Does the investment time frame suit you? For instance, if your goal is to access the money in a year or so, a pure equity fund will not be a smart suggestion.

Informed decisions must be made not only when buying a fund, but also when monitoring one’s portfolio. While selecting the right fund is important, evaluating its aptness on a recurring basis is no less important. For instance, if the manager departs or the manager decides to ply a different investment strategy, it could result in a fundamental change in the fund’s nature. In such a scenario, it is important to assess if you should continue to stay invested in the fund.

At times, the need to review the portfolio could be triggered by a change in the investor’s investment objectives, risk profile or investment horizon. As a result, a fund that was apt for the investor in past may no longer be suitable.

  1. I will be resilient.

While investing in market-linked avenues, resilience is a trait investors must possess. There will be periods when markets run into rough weather and test the resolve of investors. That is the time to be resilient and not deviate from one’s investment plans.

For instance, if you are investing in equity funds and the market experiences a downturn, don’t hit the panic button and discontinue your systematic investment plan, or SIP. Indeed, that’s the time when the benefits of an SIP kick in, by lowering the average purchase price.

Conversely, when mutual funds that don’t suit one’s risk appetite emerge as the season’s flavour, there is a need to be resilient to resist the temptation of investing in them.

Being conversant about investment avenues and their nuances can aid investors in becoming resilient. While investing in an equity mutual fund, it would help to have a long-term investment horizon (at least five years), be aware of the potential downside (loss of capital) and understand the scenarios wherein the fund is likely to be at its best and struggle to deliver.

Simply put, being aware can make investors more resilient and in turn, better equipped to deal with testing conditions.

  1. I won’t let noise influence my investments.     

It isn’t uncommon for the media to carry reports on trends in mutual funds. Often, the discussion centers around how much assets a given category of mutual funds gained or lost, or which mutual fund segment was the best performer in the last month or quarter. Such articles are at best examples of data compilation. However, investors run the risk of hurting their cause, if they treat the same as investment advice or base their investment decisions on such reports.

Simply because a story claims that investors have taken a liking to debt funds or have developed an aversion for equity funds, there is no reason for investors to follow suit. In the world of investments, one size doesn’t fit all. Instead, investors would do well to block the noise and focus on their investment goals, plans and adhere to the same, irrespective of what the popular trend suggests.

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Ganesan T
Dec 23 2016 05:33 PM
Truly everyone can follow this to avoid getting duped
anwinder pahuja
Dec 14 2016 12:17 PM
Dear Larissa,
Thank you for republishing one of your best articles.
This article is a personal favourite. Not only is a printout of the original pinned on my desk, I had shared it with my clients too.
This one is for the ages.
Kind regards,
Mutual Fund Tools