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Mutual Funds is an investment instrument which pools in money from various investors into a particular fund that suits the investor’s risk appetite as well as long term financial goals. The money invested by investors is put into various market linked instruments like equities or debt. Please note that most mutual funds offer market linked returns and therefore, cannot be compared with fixed income investments. Investment in Mutual Funds can be done in two ways- through Lumpsum Investment or through Systematic Investment Plans (SIP).

Please check here the returns of lump sum investments and SIP investments

In case of Lumpsum, one-time investment is made into a particular fund and the performance of the same is tracked throughout the time period. In case of SIP, a particular amount is auto debited every month on the chosen date from the investor’s account and invested in the mutual fund scheme chosen by him/her. This continues for the time period chosen by the investor. Investment is a serious decision which needs to be taken after careful analysis, advice, planning and scrutiny of the respective mutual funds schemes managed by various fund managers.

Here is a brief on the 5 questions that you must ask yourself before investing in Mutual Funds:

  1. Consider you financial goals - Every person has a financial goal in mind when they are making an investment in mutual funds or any other instrument. It may be to buy a car, house, planning marriage of children, children’s higher education, etc. It is, of course, different for different people. One needs to identify their personal financial goals for which they are making the investment and start accordingly. For example, if you want to buy a car which costs 10 lakhs after 10 years, then you need to make a lumpsum investment of 3 Lakh INR in order to reach this goal, assuming that your investment grows at 12%p.a.

    The same goal can also be achieved after 10 years by making a monthly SIP of 5,000 every month in an equity mutual fund scheme, assuming your investment grows at 12% p.a. So, one needs to decide according to these goals which method of investment he/she wants to go for, the amount they can invest to reach the goals and the mutual fund schemes they want to invest in.

    You can use our Goal Setting Calculator to plan your goals

  2. Performance of funds - Another important question one needs to ask before investing in mutual funds is, ‘How has the fund performed in the last 5 - 10 years?’ We always check the quality of things before purchasing it, don’t we? Similarly, one needs to check the performance quality of mutual fund schemes they are choosing to investin to ensure that it’s a good fund to put their hard earned money.Most of the mutual fund research websites have statistics and numbers about how a particular fund has been performing since 5, 10 or 15 years. So, the investor needs to analyze it closely and then take a call whether he/she wants to invest in that fund.

    Please check the historical returns of all mutual fund schemes

  3. What is your risk profile - Risk profile simply means the amount of risk an investor is willing to take while investing in mutual funds. As known, the performance of mutual funds depends on the market trends and hence it is not consistent or constant, it fluctuates with market highs or lows. This is the reason why an investor must know what his/her risk profile is as this will help to determine the kind of mutual funds they should invest in.

    For example, a low risk taking investor would probably want to go for debt mutual funds, a high risk taking one would want to opt for equity mutual funds. A person taking medium risk may like to invest in hybrid funds and so on.

    Please notethat mutual funds offer schemes that can suit not only the various risk profiles of the investors but also the different needs. However, the simple way to find schemes matching your risk profile is the ‘Risk-o-Meter’ of the scheme. The scheme Risk-o-Meter denotes the risk level of the respective funds and one can selectfunds which match with theirrisk profile.

  4. Performance track record of the fund manager - As discussed before, it is important to be aware about the type of fundsthat you are investing in and the people (fund manager and his/her team) managing these funds. One needs to identify who the fund manager is for the particular fund and must check his/her past track record. The performance of the fund manager is available in the public domain. Please note that performance of mutual funds is totally dependent on the ability and skills of the fund managers and their research team. Just like tracking the past performance of the mutual fund schemes, investors should look at the performance credentials of the fund manager too in order to be doubly sure that the fund management is in reliable hands.

  5. Claiming of tax benefits - Mutual Funds, especially Equity Linked Savings Schemes (ELSS) allows investors to claim deduction of Rs 150,000 in a year under Section 80C of The Income Tax Act 1961.Please note that ELSS Funds are locked-in for 3 years from the date of their investments. Therefore, investors need to check if the tax benefits are available in the fund they have chosen. While planning your investments, you must figure out if you need to save taxes too on your investments, if yes, then choosing an ELSS fund would be the right option. However, if you do not need to save taxes on your investments then you can invest in open ended schemes. For tax payers, the most ideal situation is to invest in ELSS funds and link them with their future goals.

    Please check what would have been your returns in ELSS investments in the last 10 years


Investment is done with a lot of expectations in mind regarding completion of financial goals in the future, securing the future of heirs and many more. In order to take the right investment decisions in mutual funds, one must ask these crucial questions for being sure that the right investment decision is being taken. We at Kubot help you plan your investments and select mutual funds based on your risk taking ability.