When it comes to mutual fund investing, knowing you risk appetite, investment horizon and the objective of investments is must, otherwise you will not know which mutual funds to invest in
Once you know the above you can choose a matching scheme for your investments. AMCs provide Product and scheme level Riskometer for each scheme which helps you understand the risk associated with each scheme and whether it is suitable for you or not.
Following are the examples of Mutual Fund Scheme Riskometers and what they mean to the investors –
Low – It indicates that the investor understand that their principal will be at low risk.
Moderately Low – It indicates that the investor understand that their principal will be at moderately low risk.
Moderate – It indicates that the investor understand that their principal will be at moderate risk.
Moderately High – It indicates that the investor understand that their principal will be at moderately high risk.
High – It indicates that the investor understand that their principal will be at high risk.
Now let us see which category of mutual funds to invest in according to the above Riskometer.
Low risk funds – Generally low risk funds are liquid funds and ultra-short term debt funds. For investing in these funds your investment horizon should ideally be 3 to 6 months. However, you can invest in liquid funds even for few days.
Moderately low risk funds – Generally moderately low risk funds are short term income funds and your investment horizon should be minimum 6 months to 2 years or above for investing in these funds.
Moderate risk funds – Generally moderate risk funds are long term income funds and debt funds other than liquid and ultra-short term funds.
Hybrid Debt Funds (known as MIP) are also usually treated as moderate risk funds
Your investment horizon for moderate risk funds should be minimum 3 years or more.
Moderately high risk funds – It generally consists of schemes from hybrid aggressive funds (earlier known as balanced funds), Hybrid Equity Savings Fund, Index fund and large cap fund etc. categories.
Read what are large cap equity mutual fund schemes and what are hybrid aggressive funds
Your investment horizon for moderately high risk funds should be minimum 5 years or more.
See top schemes in some of these fund categories –
Top performing large cap equity fund
Top performing hybrid aggressive funds
High risk funds - Generally high risk equity funds consists of schemes from the mid and small cap category, sectoral and thematic fund categories.
Your investment horizon for moderately high risk funds should be minimum 5-7 years and above.
See top schemes in some of these fund categories –
Top performing mid cap equity fund
Top performing small cap funds
Top performing multi-cap Funds
Therefore, from the above you are clear that once you know your risk appetite and the investment horizon you can select the right funds based on the matching Riskometer of the respective schemes and therefore you clearly know which mutual funds to invest in.
In summary, the best mutual fund to invest in is the one which matches your risk appetite and the investment horizon and it is the most important aspect of mutual fund investments.
Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.