Women today are more independent, confident and aware in terms of making their own investment decisions. With the awareness surrounding mutual funds steadily on rise, an increasing number of women across various age groups and income levels are making mutual fund investments. While mutual funds are a suitable investment tool for making short as well as long-term investments, there are certain factors every prospective women investor must be well versed with.
- 1 Identify and prioritise your financial goals
- 2 Avoid basing your fund’s selection on NAVs
- 3 Pick a fund based on your risk profile, investment horizon & expected returns
- 4 Choose between direct and regular plans
- 5 Choose between growth and dividend option
- 6 Choose between mode of investments – SIP and lumpsum
- 7 Review your financial portfolio periodically
Identify and prioritise your financial goals
Before you start investing in mutual funds, be sure to identify and prioritise your financial goals. Your mutual fund investment must be linked to specific financial goal to ensure better direction to your investment. For woman, financial goals and their priorities differ basis her age, financial condition, number of dependents etc. For example, for an unmarried woman, the financial goal of building a corpus for marriage may be of greater importance while for a mother, accumulating corpus for her child’s higher education would be of priority, since with the rising education cost, her spouse’s savings may not be adequate.
Avoid basing your fund’s selection on NAVs
When selecting a fund, some investors are attracted by lower NAV, since it is cheaper than the fund priced at higher NAV. NAV is per unit price of a fund, which depends upon the AUM and total outstanding units of the fund. For instance, if you invest Rs 10,000 each in 2 funds having NAV of Rs 20 (fund X) and Rs 50 (fund Y), respectively, the different NAVs imply that you hold 500 units of X and 200 units of Y, total value of both being the same, i.e. Rs. 10,000. So, whether NAV of a fund is high or low, it would only change the number of units owned by the investor and is never an indicator of the performance or status of the fund, and therefore should not affect your viewpoint while choosing a fund to build your portfolio. Instead, when evaluating a fund, look at the returns and portfolio of the fund over various time period and then compare it to the benchmark indices and peer funds.
Pick a fund based on your risk profile, investment horizon & expected returns
The choice of funds, whether debt or equity, primarily depends on the investor’s risk appetite, investment horizon and expected returns. If you have a low-risk appetite and are looking to invest to attain short- term goals (1 to 3 years), then short-term debt funds would be an appropriate choice. However, if you have moderate to high-risk appetite, equity mutual fund is a prudent choice to fulfil your long-term goals (5 years and above). This is because equities have the potential to outperform fixed income instruments and inflation by a wide margin in the long run.
Choose between direct and regular plans
When you purchase mutual funds by paying commission to a distributor or some other intermediary, it implies purchase through regular plans. Whereas directly purchasing funds from AMCs or via online platform without incurring any distributor commission is referred as direct plans. While the investment objectives of both are the same, these 2 differ on the basis of returns, NAV and expense ratio. Since direct plan is sold directly to investors without involving any distributor, its expense ratio is usually up to 1% lower than its regular counterpart. Lower expense ratio in direct plans leads to an increase in fund’s NAV and returns.
Choose between growth and dividend option
When you choose growth option, you get the benefit of the power of compounding as your entire principal amount along with profits earned is reinvested back into the scheme. This helps in maximising the scheme’s NAV which on sale garners higher capital gain on the same number of shares you originally bought. However, dividend funds enable you to avail the dividend as and when declared by the mutual fund.
Unfortunately, most of the people consider mutual fund’s dividend as an additional income. They are not an additional income but are the amount paid out of your own investment. The paid-out dividend is calculated on the scheme’s face value, thereby lowering NAV to the extent of the dividend paid out. Hence, consider choosing growth option over dividend option to ensure that your fund’s returns make most of compounding
Choose between mode of investments – SIP and lumpsum
Lumpsum investment is one-time investment of a large amount which requires timing the market well. Here, the investor may even end up catching higher point of equity market, resulting in high NAV, which would lower the overall gains whenever the market falls. On the other hand, SIP involves disciplined investments by regularly investing fixed/small amount over long term in a selected mutual fund at regular frequencies, say, weekly, monthly, quarterly, half yearly or yearly, regardless of the current NAV or market level. SIP involves concept of rupee cost averaging, which averages out the cost at which investor buys mutual fund units over a period of time with zero need to monitor the market and time your investments. While the investment remains the same every interval, the number of units purchased may vary depending on the market levels. More units are purchased when the market prices are low and fewer units are purchased when the prices are high. Since SIP negates the need to time the market, they are well suited for women who are new to mutual fund investing.
Review your financial portfolio periodically
Your financial portfolio assists you to reach your financial goals. Therefore, as an investor it is crucial to compare the performance of your mutual fund schemes with its benchmark indices and peer funds every quarter. Consider redeeming them for better performing funds if they have consistently under-performed over the last 4 quarters.