5 Ways to Minimize your risks even with equity funds
It’s known that equity funds are risky. But the risks can be mitigated when you adopt certain strategies. Every investor needs to understand how to reduce his risk and earn Higher Returns.
- Stick to good companies, diversify within the Categories
Within actively-managed funds, those that invest largely in large-sized companies are the least risky. Since these funds track the 100 largest companies by market capitalisation, these funds move more or less in line with broad market indices. But they do come with a fair share of volatility.
So far this year, large-cap funds have fallen by 14%, but small- and mid-cap funds have fallen by 21%. Hence it is important that you need to invest in all categories and buckets like Large Cap Funds, Multi Cap, Mid cap and Small Cap. Consult with your Financial Advisor for suitable Asset Allocation.
- Choosing The Right Asset Allocation
Asset allocation (debt/equity) is the key. 90% of the risk of your portfolio come from asset allocation. Choosing the right allocation as per the markets is hence the key. Consult with your financial advisor and diversify your assets.
- Avoid Timing the Market
Multiple strategies like Systematic Investment Plan (SIP), Systematic transfer Plan (STP), Switch etc are available to make the best of market crashes and surges.
- Dynamic Asset Allocation Funds
If one does not have the heart for Equity markets then invest totally in Balance Funds ( Equity Hybrid Funds ) debt funds. They are best tools to beat the returns from FDs/Savings accounts. Their returns are stable and do not fluctuate like equity mutual funds.
- Be wary of thematic and sector fund
The riskiest of all mutual fund schemes are thematic and sector funds. A thematic fund invests in a clutch of sectors bound by a common theme, such as infrastructure, bank and financials.
A sector fund is narrower. It invests in just one- or two sectors. These funds are opportunistic as they aim to maximise their returns when their chosen sectors are doing well. Hence, to make the most of them, investors need to understand when to invest in them and when to exit.
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