Factors Affecting Mutual Fund Investment Decisions

Listen to our Podcast: Grow your wealth and keep it secure.

0:00 / 0:00

In India, those who wish to invest their wealth have a world of options before them. Investment in appropriate avenues suited to the requirements of investors gives people the opportunity to grow their capital and widen their financial knowledge. Investment is tempting in India today, as there are many avenues and instruments you may consider.

Furthermore, among lucrative investment channels, mutual fund investment is gaining popularity in the Indian investment ecosystem. Before delving into the factors that may influence your investment decisions regarding mutual fund investment, it is worthwhile to have an idea about this investment stream.

Mutual Fund Basics - Should You Invest?

Mutual funds, as their name suggests, are funds in which investors pool their capital to invest in a basket of stocks or other instruments like debt funds. Since mutual fund investment offers you a variety of options from investment in stocks, and other securities, it allows you to have a customisable investment channel suited to your needs. Say, if you are an investor who doesn’t mind the amount of risk in your investment, you may choose to invest in mutual funds that mainly allocate your capital to equity. For those of you with a lower risk profile, you may go in for mutual funds that invest in debt instruments for the major part.

Additional ReadMutual Funds

Mutual Fund Investment - Factors Influencing Investment Decisions

Investment decisions are largely personal choices that are made according to the requirements of different investors. Consequently, if you are investing in mutual funds, the decisions you make while investing relate to you, the individual investor. What potential factors may influence your investment decisions regarding mutual funds? Consider the factors mentioned below:

Risks Involved

Some risk is involved in any investment you may choose to make. Although there are those investments, like bank fixed deposits, that hold a marginal risk in investment and offer you relatively assured returns, there are some that have the potential for high returns, but come with more risk. Where mutual fund investment is concerned, the risks may be high depending on the fund you invest in. You may consider any mutual fund investment and assess the risk involved for you, depending on whether the fund is investing your capital in debt or equity.

Mutual funds also allocate your capital for investment to government securities which may pose a lesser risk than, say, investment in mutual funds that invest heavily in stocks.

Besides the fund itself posing risk due to the type of instruments it invests its capital in, there are also other risks involved in mutual fund investment. For instance, there is market risk tied to mutual funds investing in equity. Markets may experience volatility, and this affects your investment. Besides this, there are risks related to inflation and other global factors that affect your investment in mutual funds. Furthermore, with debt securities invested in mutual funds, there is the risk of interest rates fluctuating.

Liquidity in Mutual Funds

This is one of the most significant factors affecting mutual fund investment decisions. Liquidity is the ease with which you may dispose of assets, such as stocks invested through a mutual fund, in exchange for cash (money). Your mutual fund investment decision for a particular mutual fund may be based on this factor and how easy it is for you to liquidate your assets if you need to (say, in an emergency). If a mutual fund is one of high liquidity risk, you may not consider it, aligned with your requirements.

Mutual Fund Performance

While making your decision to invest in a mutual fund, you are likely to research a variety of funds. You can easily do this online and find information regarding a particular fund’s past performance. Although this is just one of the relevant factors to consider, it is not the only one, but you can get some idea of the historical performance of a fund and its consistency in giving investors returns. More or less, you may consider a fund that has outperformed its benchmark in the long term. You may discover that some funds exceed their benchmark performance, called ‘alpha’ funds. These may be worth thinking about for investment according to your individual needs.

Steady Returns

The mutual funds that perform well are those that tide over market movements and volatility and give investors consistent and somewhat steady returns over time. These may factor in your decisions to invest. Mutual fund investment may be considered if a specific fund of a certain type meets your requirements for a stable income source.

Additional Read: Share Market Updates

Individual Investor Goals

You may consider a mutual fund investment, as you would any other kind of investment if it fulfils your goals of investment. In terms of mutual funds, there are many types and durations involved, and you may pick and choose according to your individual financial goals. No two investors are alike, and you may want to consider your investment goals and potential risk involvement while making investment decisions.

The Bottom Line on Mutual Fund Investment Decisions

Mutual fund investment has proven a good choice for a plethora of Indian investors. Their rise in popularity is largely because they offer you tailor-made funds to invest in according to your investment and financial goals. There may be risks in investment, but over the long run, mutual funds may be considered investment avenues for portfolio diversification.

If you wish to be ethical in your mutual fund investment journey, Shariah-compliant mutual funds may be considered. Nonetheless, these funds have regulations and restrictions stringently imposed on them, and consequently, they have a narrowly defined focus on investment. Since this is the case, you may consider the fact that returns from such funds may be bound by the particular sectors and industries invested in. Before you invest, you may want to think of your investment goals and financial plans.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

Share this article: 

Read More Blogs

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

7 Lac+ Users


4.3 App Rating


4 Languages


₹ 3800 Cr MTF Book