Investment thought and MF. Review on Tips on Investing Money

A share market is known place to loose money and every time you loose money, ‘expert’ ask you to put more money for ‘Averaging’ your losses. We always tempt to invest when Boom comes & try to get away during correction. Nothing wrong; it’s proven human tendency.

What to do? definitely avoidance is not the solution, Catch the bull by Horns. better to go for MF, but again getting a good fund in a close proximity to your need is another mammoth task when nearly 1000 fund and 30 fund house are there to choose from

Person requirement

*Spare money

*How much you have right now(Don’t make assumption, it is Finance, not a entertainment spot). And when you require it? Identify your next quarter big ticket Expenditure.

*Risk Appetite

*How much money you can afford to loose? It is very simple to answer but very difficult to experience. Even a loss of 1000/- is panic(even if 5% capital loss, it is significant)

*Market understanding

*First, You must make money to loose it; so be defensive at initial(wherever the market is), put little amount, wait & watch, It is always better to run slow rather than biting dust.

Second, there is no ‘loss or profit’ in MF. It is only worth calculated, means your net worth at 4.00 pm everyday. So accept your net worth(Capital) whether it is more or less from earlier day.

Third, Capital means capital; even 100% return made on 1000/- investment it is Insignificant, but 30% return on 10, 00, 000/- is impressive. So put some significant amount(vary person to person)

Single Or regular investment

How comfortable you are in investment pattern, Single time is easy to decide but more risky, regular bites every time but less risky(remember Risk and return are directly proportional)

*Time

*Definitely you don’t have otherwise do it yourself. Why to pay Fund mgmt charges.

*MF Requirement

*Fund House: It’s existence, professionalism, and sincerity towards our expectation.

Approach: How the fund assesses the market in both phases? Whether it’s performance depends on fund manger or their research and focus? What are the investment pattern?

Past Existence:How old this fund house and fund is? What is its performance in both past?

Basic Nature: Whether they are aggressive, defensive in nature? How they manage your money? How concentrate they are in promising sectors/stocks.

Note down all these answers on paper and grade the scheme, at the end you will come up with handful of good schemes

But this is again time taking process(which you don’t have), it seems that we are again at starting point……… Huh

So try this approach(Please chalk-out all plan on paper, if you are doing it first time and having a faith on the approach too)

*Regular investment

*Put a lump sum in an account and let it invest in market in regular manner(STP most wise and powerful way to handle market volatility)

*Fund selection for single time investment(Lump sum)

*Check out star rated funds, consistent performer, good Annualized return over five years(Important time line because fund must have completed a full cycle of bull-bear phase, no extra expanse can be charged on you, fund manager or fund approach will be established and tested.)

Fund selection for SIP/STP

Check out black horse, exposed to midcap, more opportunistic funds could be preferred choice, Why? …… becoz’ SIP works best over volatility, STP works best over irregular income.

we’ll check by example.(Courtesy:Valueresearchonline.com)

Variable Market.(May 1, 02 – May 1, 06)

Your purchase is made on fluctuating NAV(Higher return in SIP) so you accumulate more units over time but Single time purchase may not be better than top performing funds.

Fund              Annual Return    SIP Return

ICICI Power 49.53%                  55.91%

FT Prima      58.19%                  62.60%

*Consistent Market.(May 1, 05 – May 1, 06)

*Your purchase is always made on higher NAV(Lower return in SIP) but Single time purchase gives you better return over time.

Fund                  Annual Return   SIP Return

ICICI Power      55.07%                 33.99%

FT Prima            47.24%                28.17%

*Final word on Risk Appetite:

*Your risk appetite is not depend on your age but depends on how much you have earned from the market so start slowly, capture your gains(profit counts only when realized) and increase your risk appetite.

*Final word on Investment:

*Put lump sum, short term amount in Large cap funds(less fluctuating fund)

Put SIP/STP, long term amount – SIP get bigger in long term, in Mid cap/Small cap funds(More fluctuating fund)