Why am I investing in mutual funds

Quiz: Are you ready to invest in mutual funds?

So you’ve finally made up your mind to put some of your hard earned money in mutual funds. Stocks, bonds, gold — you name it; there are funds that invest in any or all of these.

Test yourself to see how solid your basics are. Check the option you believe closely reflects your view.

  1. Why am I investing in mutual funds?

    A) For meeting financial goals for myself and my family. It’s part of my asset allocation strategy.
    B) Because my bank manager keeps telling me, I can get higher returns than an FD. He’s in the business, he has to be right.
    C) To get rich quick. Stock markets make money like nothing else can.

  2. How do I select my funds?

    A)Read up on how to choose funds. Identify my goals and pick up funds on the basis of their past long-term performance.
    B)Sort all funds on an aggregator website by the last 1 year returns, shortlist the top 5. Then I’ll see which of these overlap with my friends’ and what ‘experts’ recommend on TV.
    C) Love the XYZ brand, can’t go wrong with their funds.

  3. Is the Net Asset Value (NAV) important?

    A) NAV reflects how the fund is doing, but a single NAV in isolation tells nothing.
    B) Two funds can be compared using their NAVs.
    C) Higher NAV means the fund is doing well. I must buy high NAV funds.

  4. If I have an Systematic Investment Plan (SIP) and the markets plunge next month; What will I do?

    A)Stay calm. My investments are for goals a few years away. So I needn’t worry.
    B) Phone my adviser to ask, “You sure it’s gonna be alright?” “Absolutely sir, remember I’d told you markets don’t move in a straight line? Just relax and give it time.”
    C) Lose sleep. Why didn’t I listen to my dad’s warning that he’d lost money in the markets 25 years back?

  5. Once I have invested in a SIP for a long term, what do I do next?

    A) Switch part of the SIP to balanced funds or maybe debt funds, to balance my asset allocation from time to time.
    B) Keep track of performance once in awhile and stay put until my adviser suggests moving them
    C) Check NAVs frequently and switch to the best performing funds every year.