Starting your mutual fund investment journey this Diwali? Here’s how to do it right

Many people plan to start their investment journey during Diwali, but confusion over which mutual fund schemes to choose often holds them back. ETMutualFunds aims to address these concerns this Diwali to help new investors make informed choices.

Investing in mutual funds can lead to significant returns if done wisely and aligning with the goals, risk profile and investment horizon, but it can also result in losses if not approached properly. Historical returns show that long-term investment (say of five 5 years) in mutual funds can offer upto 42% return. For example, small cap mutual funds have offered an average return of 27.99% in the last five years. Quant Small Cap Fund and Nippon India Small Cap Fund gave 33.97% and 32.79% returns respectively. Mid cap funds provided around 25.97% average return, and large cap funds gave about 18.91% average return. These returns highlight the potential of consistent and long-term investing.

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After looking at the past performance of equity mutual funds, if you are starting your mutual fund journey as a first time investor, a mutual fund expert says that for first-time investors, it’s important to start with diversified, well-constructed products that can balance growth with stability.

“Diwali is a wonderful time to begin an investment journey, as it’s symbolic of new beginnings and disciplined prosperity. For first-time investors, it’s important to start with diversified, well-constructed products that can balance growth with stability. Multi Asset Allocation Funds are a good starting point, as they invest across equities, debt, and commodities like gold and silver, offering both diversification and a smoother experience through market cycles. Equity or hybrid funds can also work well for those with a slightly longer horizon and comfort with market-linked returns,” Raghav Iyengar, CEO, 360 ONE Asset shared with ETMutualFunds.

An investor should understand his/ her risk profile, goals, time horizon and return expectation before choosing a scheme. He can take professional help or do it himself.

Post selecting a mutual fund for investment, amid the ongoing market volatility, mutual fund experts are confused whether to go with a staggered manner approach, SIP or lumpsum.

According to Iyengar, systematic investment plans (SIPs) are the best way to participate and starting small and staying consistent works best in the long term.

“Markets are always forward-looking and can move unpredictably in the short term. Systematic Investment Plans (SIPs) are an effective way to participate. They bring in discipline, reduce the impact of volatility, and help build wealth gradually over time. A lump sum can complement SIPs if there’s an immediate surplus, but for most new investors, starting small and staying consistent works best in the long term,” said CEO of 360 One Asset.

Diwali, often seen as an auspicious time to start new investments, also becomes a period when investors may act impulsively by chasing returns, ignoring risks, or failing to review their existing holdings.

Many new mutual fund investors often choose those funds that offer higher returns and are not according to their risk profile, investment horizon, or goals and end up having loss in their portfolio or go with high risk funds.

The common mistake that students make while investing is chasing past returns, panicking during the market downfall then withdrawing the investments and making investment decisions based on peer recommendations, influencers or social media trends.

Also Read | How to steer clear of common mistakes in mutual fund investments this Diwali

The expert says festivals often bring optimism and sometimes that can translate into impulsive financial decisions. “The key is to align every investment with a goal and a time horizon. Avoid chasing short-term trends or products that promise quick returns. Instead, focus on asset allocation, quality fund houses, and a long-term approach. Consulting a financial advisor before making commitments can also help set realistic expectations.”

As the festive season approaches, investors see this as a time for new beginnings, prosperity, and renewed focus on financial planning and wealth creation. Many investors use this period to review or expand their mutual fund portfolios.

While reviewing the portfolio investors sometimes make wrong decisions or redeem the investment which is either yielding higher returns or lower return.

So being a first time investor how often should one review their portfolio and how much of total savings should one invest in mutual funds?

According to Iyengar, once you start investing, resist the urge to check your portfolio too often unless your financial goals or income significantly change and for first-time investors, allocating around 10–15% of monthly savings to mutual funds is a good place to begin.

“As your comfort, confidence, and income grow, you can gradually increase this share. The most important step is to start early, stay consistent, and remain disciplined. Over time, the power of compounding will do the rest,” he adds.

One should always invest based on their risk appetite, investment horizon, and goals.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and Twitter handle.