- Gauge your risk appetite Though equity investments signal that you have a high-risk appetite, yet not all equity funds carry the same amount of risk. While large-cap equity funds are relatively more stable, mid and small-cap funds carry a higher element of risk. At the same time, they have the potential to offer higher returns than large caps in the long run.
- Opt for funds that have performed well across market cycles After you have figured out your risk appetite, it’s important to select funds that have performed well across market cycles. Note that the market goes through cycles and soundness of a fund is tested when it’s undergoing a bearing phase. A good fund is one which not only adds to your wealth during the bull run but also prevents a dip in corpus during the bearish phase.
- Mode of investment There are two modes of equity investment – systematic investment plan (SIP) and lump sum. While the former entails deducting a fixed amount every month and investing in the chosen fund, the latter calls for investing at one go. You can opt for either of them, depending on your risk appetite.
- Don’t exit following volatility Equity investments test your patience. If you have made a sound investment, then it’s essential to remain invested and not exit following short-term volatility. Such a move can hamper long-term wealth creation.
If you have a higher risk appetite, then you can bank upon mid or small-cap funds. On the other hand, if you are looking for stability, then large caps should be on your radar. Figure out your risk appetite and act accordingly.
Equally essential is to hold on to them for a long period. Note that equities are volatile in the short-term. However, it comes down by several notches when you hold onto your investment for long as the risk is spread over time.
However, the methodical approach calls for testing waters before investing and in such a scenario, it’s prudent to opt for SIPs, which allow you to start small. Go for SIPs in equity mutual funds, whereby you can invest a fixed amount of money every month.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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