Mutual Funds : For new investors, who are going to invest in mutual funds for the first time, mutual funds can be a better way to invest in equities. Equity mutual funds allow all types of investors to invest their money in different types of asset classes, be it a novice or an experienced investor. Experts believe that investors should choose their mutual fund category keeping in mind their age, financial goals, risk appetite and future. You can invest in large-cap, mid-cap, multi-cap or small-cap equity funds as per your requirement.
There are different categories of mutual funds, whether large-cap, mid-cap, multi-cap or small-cap. All these funds indicate the size of the companies in which the fund is invested. For example, in a large-cap fund, at least 80 percent of the fund’s total corpus is invested in the stocks of the top 100 companies with the highest market cap in the country. Similarly, in mid-cap funds, at least 65 per cent of the fund’s total corpus is invested in equities of mid-cap companies. Whereas, under small-cap funds, about 65 percent of the fund’s total amount is invested in equities of small-cap companies.
Small-cap and mid-cap funds
This type of fund is considered best for young investors who are not afraid to take a lot of risk and expect high returns. Industry experts say that small and mid-cap funds with good ratings can prove to be beneficial for investors. If an investor is willing to take more risk then he can get higher returns through this fund. If you invest in it for a longer period, then it reduces the risk associated with small and mid cap funds. Experts believe that diversification is very important in investing and investors should always diversify their investments. Investors should always invest in different asset classes or within the same asset class but in different mutual fund companies.
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In such funds, as per the new SEBI norms, the fund manager will have to invest at least 75% in equity and equity oriented funds. The rules say that the fund manager is required to invest at least 25-25% of this in large cap, mid cap and small cap three. Experts say that if you want to invest in equity funds, but do not want to take a lot of risk, then you can consider investing in well-rated multi-cap funds. This multi-cap fund is suitable for both young and middle-aged investors. One thing to note here is that multi-cap funds offer lower returns than small and mid-cap funds.
Middle-aged investors who want higher returns than debt funds without taking much investment risk can invest in large-cap funds. These funds are also known to give stable returns in volatile markets. Experts believe that large-cap funds generally carry less risk and provide moderate returns as compared to funds with higher exposure to mid- and small-cap equities. So if you are nearing retirement or want to invest with low risk, you can invest in well rated large-cap funds.
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What do experts say
Financial experts say that investors should choose the right category for themselves keeping in mind their financial goals. If you want to invest for a long term and have a high-risk appetite, you can opt for more investments in small and mid-cap funds. However, if you can take moderate risk and want to invest for a little less than the long term, then you can allocate a major part of your investment in multi-cap funds. .
If you have moderate to low-risk risk appetite and want to invest for medium-term, then experts suggest that such people should make a large-cap portion of their equity allocation. Funds should be invested in. Also, you can shift your allocation from small/mid-cap to multi-cap and large-cap if your mind changes over time and your risk appetite is more or less.
(Article: Priyadarshini Maji)