What are Mutual funds? Fundamental analysis by investment experts

What are mutual funds or what should be the best strategy to get better returns are the topmost queries for investors. To counter this question, investment experts say that an investor should first set his or her investment goal. Then they should look for the plan and then fund allocation. Experts also suggest having a balance between equity and debt exposure so that an investor doesn't get over-exposed to the risk factor. So, a proper answer to how much an investor should invest in equity mutual funds and how much in debt mutual funds is also important before an investor actually begins investing.

Elaborating upon the various types of options available for mutual fund investments, Manikaran Singh, a SEBI registered tax and investment expert said, "Mutual funds offer both equity and debt fund options. It mainly depends upon the risk appetite of the investor. Like fund selection, category — small-cap, mid-cap and large-cap — selection also depends upon the risk appetite of the investor. Therefore, the risk appetite of the investor has a majority of the answers of the investor in regard to better returns and achieving one's investment goals." However, Manikaran Singh maintained that balance between the debt funds and equity funds is the must as one can't put his or her entire money into the high-risk funds.

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On how much one should invest in equity mutual funds and how much in debt funds, Balwant Jain, a Mumbai-based tax and investment expert said, "The question is not so easy to answer as it seems. The answer would vary from person to person depending on various factors like whether you have any other source of regular income to supplement your monthly expenses. What is the risk-taking ability of the person and whether any other pending goals, in addition to the retirement, is still there?" Jain said that the asset allocation between debt and equity is a difficult question to answer but as a thumb rule, 100 minus your age can be the component of equity in your portfolio. One should follow this pattern if one does not have any other regular income and still have some risk-taking ability.

"Looking at the fact that the risk-taking abilities come down and yet one needs better returns for ensuring growth of the investments, investments in aggressive hybrid equity fund is suggested where the fund manager invests minimum of 65 per cent in equity and the balance maximum of 35% in debt products to take care of volatility in the market. These funds are less volatile than other pure equity funds. Moreover, for five year periods, the aggressive hybrid funds as a category have given better returns than large-cap funds as a category with lower volatility," said Balwant Jain.