Understand your investing style: Is it 20–20, ODI or Test?
If you are a cricket enthusiast, you would understand that you need to have a different playing strategy for different types of cricket matches. Your investment strategy needs to follow a similar approach.
Let’s say, you are the captain of your team, you start your match by winning a toss and decide to bat first. For every type of match you play, there are some factors that are more important to you than the others.
Here’s a snapshot:
You will calibrate your batting strategy depending on the type of match you are playing. While batting for a 20–20 match, your preference will be to achieve a higher run rate without worrying about losing a wicket. But during ODI, you will want to strike the balance between the run rate and wickets in hand, and during a test match you will focus more on preserving wickets and not on the high run rate.
But you know this already. How does all this relate to your investment style preference?
Well, if you are new to mutual funds, choosing the right type of mutual fund for your investment can be quite similar. The type of mutual fund you invest in would largely depend on your investment needs.
For example, when you are investing for the short term, your focus should be on funds that can offer consistent returns with low risk. However, while investing for the long term, you can invest in funds that have the potential to deliver high returns but with some ups and downs in the short term. In simplified terms, as a batsman, you will change your batting strategy based on the type of match you are playing. Similarly, make your investment choices based on your investment needs.
Here’s a quick guide for illustration.
As you can see, as your investment term increases or risk preferences changes from low to high, the potential return also increases. This shows that if you are okay with higher short term ups and downs in the fund performance, the return generated over the long term will be much higher. In short, higher the risk, higher the potential returns.
Hence, when you make your first investment make sure to select your investment style according to your investment goal.
Disclaimer: Mutual Fund investments are subject to market risk. Please read the scheme information document carefully before investing.
PhonePe Wealth Broking Private Limited | AMFI — Registered Mutual Fund Distributor ARN- 187821.