Q. I am a 25-year-old investor and have recently started my first job. I have ₹5 lakhs to invest and am interested in mutual funds. I am willing to take risks for higher returns. How do I go about this?
If you are willing to invest with a long-term horizon (above 5 years), here are some suggestions:
Risk profiling: Even if you are willing to take high risks for high returns, determining your risk profile objectively will help you know the level of risk you are truly comfortable with. This will assist you in determining your appropriate asset allocation (within equity and debt), and the level of risk you can take in equity. Many websites offer risk assessment tools and you may use one of these.
Learn about different categories of mutual funds: You should familiarise yourself with mutual funds and their workings. Recognise the various mutual fund categories, associated risks, and timeframes. Do not evaluate any product only on the basis of returns.
Choose the correct investment product: As a young investor with a high-risk tolerance, you may want to consider investing in professionally-managed equity mutual funds. You can consider a mix of large-cap, mid-cap, and small-cap mutual funds. Pick mutual funds with a strong portfolio and a proven track record of performance.
Monitor your portfolio: Review your portfolio on a regular basis to ensure that it is in line with your investment objectives and risk tolerance. Make changes as needed so that the portfolio is well-diversified and meets your investment goals.