Age and Income To Be Considered At The Time of Purchasing Mutual Funds

A number of mutual fund houses across India have had to make changes to their funds due to a notification sent by the Securities and Exchange Board of India. All companies have been making changes, either to the names of the fund they offer, or to some crucial attributes of some funds like the investment objective or the category of the fund itself. These changes have been mandated by SEBI so that mutual funds and their categories can be streamlined.

Mutual Funds

For instance, if one of the funds in which you invested was Tata Liquid Fund, the liquid fund is now a money market fund. What this essentially means is that investments under the fund can be made in debt instruments whose maturity period extends for no more than a year. In the past, liquid funds were only allowed to make investments in securities whose average maturity period lasted for 90 days. A change such as this will mean that the portfolio’s average maturity could rise over time. It also suggests that the fund’s risk profile has risen, albeit marginally. However, this change is not too significant for investors unless they intend on withdrawing their money within the following 3 months.

Investors take into consideration a number of factors when purchasing mutual funds. Each of these factors plays a part in determining the portfolio’s risk profile along with the investments it contains. If you are a slightly older investor, the risk profile of your portfolio must be low. Investors who are younger and want to stay invested for a period of five or more years can build a portfolio whose risk profile is high as they have a steady income and will not have the need to withdraw their investment for a while. Older investors may require funds after, say, three years, so low-risk liquid investments in this case would make perfect sense. Moreover, older investors will find that they can benefit significantly from investment in equity funds as it would give them adequate exposure to equities.

Investment in three to four equity-oriented hybrid funds could work out very well for older investors as their money will be allocated across different asset classes based on the market condition. This investment would work well for a period of five years or so, after which you can transfer them into pure debt funds. Another option after five years would be to start a systematic withdrawal plan so that you have funds for immediate expenses. Planning of investing in mutual funds? Click here to view options available to suit your needs.

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