A significant trend is seen across the country wherein more and more people of all age groups are preferring mutual funds over traditional investment products. Investments are happening both in debt funds, suited for safety and regular returns and equity oriented funds that offer higher growth, though with volatility.

After managing investments of thousands of clients, we have observed that the most successful MF investors follow certain practices that are fairly common. We thought of sharing five key practices of these investors so that other MF investors, new or experienced, may make a note of these and maximise the benefits from their own MF investments.

1. Creating Goals and investing accordingly

Successful investors start with certain goals that they wish to achieve through their investments. These goals could be classified as:

a. Family goals e.g. child education, marriage and retirement planning for self.

b. Asset Allocation Goal e.g. maintaining a fix proportion of money in debt and equity funds.

c. Expected Annual Returns e.g. a client may target 10% tax free return from his investments on yearly basis.

d. Investing for a defined time period e.g. a client may plan to invest his money only for few months or sometimes for few years,as the need may be.

The creation of goals at the beginning of the investment helps to identify how much money need to be allocate to what kind of funds so that the investment objective could be met by taking least risk and with least tax and exit load implications.

2. Periodic Review

Though the funds chosen for investment may be consistent performers and as per the stated goal, still a periodic review helps the client keep the investment on track. There may be taxation changes or changes in investment objective of the scheme by the fund house that may necessitate change in existing portfolio.

Where in a periodic review is a good habit, excessive tracking of portfolio, sometimes on daily or weekly basis, is not needed. An investor may do well to track his debt investments once a quarter and equity investments once a year.

3. Patience

Nothing beats Patience in getting the best out of mutual fund investments.

If the investments have been made judiciously in right kind of funds, it is only a matter of time before the investor’s expectations are fulfilled. Sometimes, market movements deter the investor’s behaviour and create anxiety. With falling markets, a client starts questioning his own decision of investing in funds.

The successful investors keep patience in such circumstances and let the volatility phase pass. With passage of time, the law of averages catch up and the funds deliver the expected returns.Key to gaining from funds is to remain invested.

4. Do not compare Mutual Funds with Real Estate & Gold

The actual value of a mutual fund investment is transparent and these funds can be liquidated anytime. Because of their actual known value and ease of getting money back, mutual funds are suitable to serve financial requirements. For recurring expenses, MF scan also be redeemed in parts.

Real estate and gold provide psychological comfort of owning wealth, but are seldom used to fulfil financial needs.

It may take few months to few years before an investor is actually able to sell his land or flat to fund his financial needs like child education. Also, the actual sale price of the property may be quite lower than the perceived value of the property, thus jeopardising the goal fulfilment. For recurring financial expenses, it is practically impossible to think of selling a property in parts, which is called Lack of Divisibility.

Gold is easily saleable in the market, but selling it is resisted by psychological barrier created by social traditions and behaviour. In our country, sale of gold by individuals is considered to be the last resort and is seen as a signal of financial distress. No individual or family thinks of selling gold. Hence,gold is only a means of wealth accumulation, and not an investment to meet financial requirements.

Because of the varied characteristics of these investments, successful investors never compare them and view each one of them independently on its own merit, and allocate money in these assets as per one’s choice and goals.

5. Trust their financial advisor

The role of a knowledgeable and trustworthy financial advisor cannot be undermined. It may take some time, but over a period, the successful investors build trust in their advisors. A trustworthy financial advisor plays a key role in managing the client’s investments as per his goals, suggests corrective action if any special situation arises, guides the clients when things are not progressing as expected, and inculcates financial prudence in clients on other money matters like loans.

Mutual fund investing is about discipline, patience and simplicity. Investors shall do well to give the above practices a thought and make them part of their personal investment process.

As always, your views and feedback on the above is welcome.

Happy Investing!

Pawan Agrawal is the founder and managing partner of Investguru. You may reach him at pawan@investguru.in .