Sep 28, 2017 3 min read

Does the Stock Strategies Works in Mutual Funds Too?

Mutual fund investments do not require strategies, unlike stock market trading. Know more.
Everyone holds different nature, different style & different views. Thus the investment options vary in various aspects whether it is risk, returns, or strategy. Many people raised this doubt that if they can apply the same strategies in the mutual funds investment like the stock market. So, we are back with the simplified answer to provide you a clear understanding of the fundamentals of mutual fund investments.

In the stock trading, the investors are well-informed and always keep a sharp look at the market movements. They need to drive investment on their own based on the market swings. But, in the case when one invests in mutual funds, he/she need not to worry about the market trend as the fund managers are there to put forward the best strategies. Moreover, the stock investors trade in the market after performing certain checks whether it is the right time to invest, whether the trend is favorable or not, etc. But, there are no such checks required when investing in mutual funds because the fund managers invest the capital into the most suitable stocks and securities. However, one needs to match the objectives and the investment style of the fund with the financial goals which are to be achieved to move in the correct directions. Let’s understand more precisely:

Is there any point in driving your car on your own, when you have hired a driver and paying him a salary? Obviously No! Only a foolish will let the driver sit in the back seat and drive the car at own. The notable point is that if you know how to drive a car then what is the need to hire a driver and paying salary. Similarly, if you have knowledge about stock market trading, then you may open up your gate for trading. But, the less informed one cannot jump into the thrills of the stock market. So, for those who don’t have much knowledge about the fundamentals of investing directly in the stocks, mutual funds provide the way ahead. The fund manager drives you toward your future financial goals.

Therefore, the stock strategies cannot be used when you are investing in mutual funds. When you invest in MF, you hire the services of the fund manager to manage your investment. And all the strategies are laid by the managers to drive you safe toward your financial destination.

What Should You Check While Investing in Mutual Funds?

You might have understood well that you don’t require to plan any strategies while investing in MF. But, there are various parameters which should be considered before deploying your hard-earned money in any scheme which includes:

  • Investment Objectives: You must have a clear financial goal and accordingly invest in the plan which is targeted toward the achievement of the similar objective. For instance, if you are planning for your retirement then you must select the fund which is designed to achieve high growth in the invested capital for a wealthy retirement of the investors.
  • Tenure: You should also know that for how long you are going to invest, or after how many years you want to achieve a corpus. Different schemes have different styles of investment. If we see broadly, equities are known for long-term wealth creation whereas debt funds are famous for meeting short-term financial objectives. Therefore, you need to be clear about your investment tenure and accordingly select the most suitable scheme.
  • Risk Involved: It is very widely said that mutual fund investments do not carry risks as the fund managers monitor the plans. But, there is always a scaling risk underlying when you opt for more desire. Undoubtedly the risk gets diversified and minimised, but none can eliminate it. So, you must know your risk appetite and accordingly select the right plan.

The three points as mentioned above are considered very necessary for the new investors. There is more to know about the various parameters of mutual fund investments which helps the investors to have a clear understanding of MFs and choosing the right scheme. If you are interested in becoming a well-informed investor in mutual funds, then read our blogs at MySIPonline.