Investing in mutual funds has emerged as one of the most preferred tools of investment for investors across the globe. And definitely there are a host of reasons for it. Top-performing mutual fund schemes in India have proved their mettle by producing returns as high as 80-percent a year, which a naïve investor rarely achieves in course of direct stock market trading. However, owing to the inherent volatility of the equity markets, investing in mutual funds also is risky, and therefore one must understand its nuisance value before entering the waters.

Here we bring you an insight.

Learn before you invest

Do you know, once you decide to invest in mutual funds you have to choose from as many as 800 mutual funds floating in the market and since not all mutual fund schemes in India bring desired results, picking up the right kind of a fund is the most crucial factor of your investment strategy.

Mutual fund plans in India can be primarily classified as equity and money market funds. If you have the capacity to bear high risk and want to exploit maximum return on your investment, equity based funds are made for you while the latter ones are virtually risk-free as they invest your money in government offered debt securities, corporate bonds and treasury bills.

Still, the returns on investment in both the types of mutual fund investment are higher than that offered by bank or post office FDs (fixed deposits).

Further, in equity oriented funds in India, you have choice of investing in diversified funds, which invest across the sectors of industry and prevent you from undue risk of being a part of sector specific downfalls.

Diversification is the best policy to balance risk and reward ratio in equity fund investment.

Also, these funds are able to sustain their performance for a longer period.

Last words

There is a flurry of sector based funds launched in India that focus on specific industries like oil & petroleum, FMCG, IT, infrastructure, banking, pharma, media, telecom, etc. but a look into their past performance reveals that the returns generated by these specialty funds are quite low in comparison to diversified funds.

Thus, it's advisable that you evaluate your options keeping all the aforesaid factors in mind for the success of your investment plans. Happy investing!!!

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