Search in Indianmoney's WealthPedia

Home Articles Questions to Ask Before Investing in Mutual Funds

Questions to Ask Before Investing in Mutual Funds Research Team | Posted On Friday, October 04,2019, 05:06 PM

5.0 / 5 based on 1 User Reviews

Questions to Ask Before Investing in Mutual Funds



Investors rushed to invest in mutual funds in 2018. The very same investors are very cautious while investing in mutual funds in 2019. Mutual Funds Sahi Hai, the super hit educational program launched by AMFI to educate investors on the benefits of investing in mutual funds is still doing great. So what changed? Is it the economic slowdown or something else? Maybe you need to ask these questions before investing in mutual funds.

What is a Mutual Fund?

A mutual fund collects money from you and other investors and then invests, based on the type of mutual fund. This could be equity (mainly in stocks), debt (mainly in fixed income) or balanced (Mix of equity and debt). A fund manager manages this money to give you the best returns. A small fee is charged for managing the mutual fund. Mutual funds are great for those who don’t know much on investing and first-timers in the stock market. You must choose the mutual fund based on financial goals and then invest to achieve them.

Want to know more about Mutual Funds? We at will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

Questions to Ask Before investing in Mutual Funds

Question 1: What are Your Financial Goals?

The first question in any investment is where am I going? What do I want from this investment? This is why you must have a financial goal. Goal-oriented investing gives superior returns vs investing without a goal. Financial goals are nothing but the objectives you seek to achieve, through investing. You are able to channelize resources and save money accordingly.

Some financial goals are more important than others. Money for retirement is more important than say buying a car. Resources are finite (You don’t have unlimited money), so resources must be allocated to the most important financial goals. If you don’t set financial goals, you end up spending money on things not really needed.

See Also: How Mutual Funds Work?

Question 2: How Much Risk Can You Bear?

Invest in mutual funds based on risk profile. The risk profile is the willingness and ability to bear the risk. Equity mutual funds are all about the high returns at high risk. They are more risky than say debt or balanced funds.

Many people invest in equity funds not realizing the risk in them. They suffer heavy losses if stock markets crash, and blame equity funds. Equity funds create wealth and so have inherent risk. Wealth accumulation happens through compounding and you must stay invested in equity for the long-term if you want to see wealth.

If you invest in equity mutual funds without knowing the risks, you end up withdrawing money at the slightest variation in fund value. The money doesn’t get compounded and you never see wealth.

See Also: How To Invest In A Mutual Fund For Beginners?

Question 3: How Long do You Plan to Stay Invested?

This is all about the investment horizon. It is the time period you are willing and have the ability to stay invested. This is how long you stay invested in a financial instrument without feeling the need to redeem the investment. The investment horizon depends on your financial goal or the financial product you have chosen for investment.

Equity Mutual Fund: If you seek a higher return (say in the range of 9-13%), then invest in equity mutual funds. You must be willing to bear risk and stay invested for 5 or more years.

Liquid Fund: This is ideal to create an emergency fund where you need money at short notice. Liquid fund offers moderate returns with high flexibility to withdraw money when you need it.

How is investment horizon classified? Investment horizon of 6 months to a year is short term, up to 5 years is medium-term and above 5 years is long term. Investment horizon determines the investment you choose,   and how long you plan to stay invested before redeeming it.

See Also: Everything You Need To Know About Mutual Funds

Question 4: How Much Can You Invest?

You know the financial goals, risk tolerance and investment horizon. Now, all you must do is fix the investment amount. You may use online calculators or IndianMoney investment calculator to decide on the investment amount.

Let’s say you want to buy a car in 5 years. This is a medium-term goal and you may invest in a debt fund to achieve it. The debt fund gives a return of 8%. You would have to invest close to Rs 6,900 through monthly SIP to collect Rs 5 Lakh in 5 years. The SIP contribution increases/decreases depending on the investment horizon and the rate of return. For higher returns, you must bear high risk and stay invested for the long term.

See Also: How To Invest In Mutual Funds Online?

You May Also Watch

Iframe Content

Keep your Financial Cognizance up to date with IndianMoney App. Download NOW for simple tips & solutions for your financial wellbeing.

Have a complaint against any company?'s complaint portal can help you resolve the issue. Just visit and lodge your complaint. If you want to post a review on any company you can post it on review and complaint portal

Be Wise, Get Rich

What is your Credit Score? Get FREE Credit Score in 1 Minute!

Get Start Now!
Get It now!

This is to inform that Suvision Holdings Pvt Ltd ("") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.