A trust that pools saving from number of investors aiming towards a common financial goal; that's much simpler definition of
mutual fund. And investors are well acquainted with the fact that money breeds in the business in a long run.
For instance, the great fall of 2008 sent a shock-wave to the investors' community across India. From its peak of 21,206.77 in January 2008, Sensex recorded a major downfall to 8,000 levels by October. This resulted in a wholesale withdrawal of funds. Those who were patient reaped major benefits in long run. Indeed financial experts strongly believe that such slumps should not be seen as threat, but opportunities.
Every steep fall suggests a right time to pick quality stocks. The key to successful investment is picking up right stocks and consistently adding value to the purchase. Secret of beating the market is to stay within the risk level and make wise investment by selecting quality companies.
Market may show a major shift in the pattern for a short-to-medium term. But in the long run, prices stabilize and come to where they deserve to be. Hot and volatile sectors in such situations such either be avoided or their stock movements should be closely monitored.
The road to investment is much simpler for balanced fund managers compared to those of pure
equity or debt fund. Balanced fund has a cushion with its equity-debt combination. A hike in interest rate by one per cent can have an impact of five percent in the investment portfolio.
Investment in bonds is much different, the fund size increases with a decline in interest rate. Maintaining liquidity in such condition is critical. Investors can effectively manage risk rate by creating "laddered" portfolio of bonds with different maturities, for example: one, three, five and ten years. Investors get return on such portfolio at a predefined interval. When one bond matures, it creates an opportunity to re-invest and proceed for a longer term investment. In such type of investment the objective of both maintaining liquidity and long-term investment can be achieved.
Volatility is integral part of the buoyant market, however investors who develop a foresight of the business can ride out of the waves. There will be ups and downs, but the patient to ride out the bump is aptly rewarded. So when the external environment is choppy, stay put and do not get swayed away by fear or greed.
