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30 something and investing in mutual funds? Three things not to do

Here are three things they need to watch out for if they are investing without the help of a financial advisor or are not yet well versed with investing.

30 is an age when many individuals start investing in earnest. I started at 30 and so did many of my friends. The reasons, while diverse, amounted to this: At 30, most individuals start earning the kind of salaries that allows significant savings.

For the vast majority of salary-earners it takes at least three to five years of working to reach a salary that crosses the mark where you are living pretty much hand to mouth.

The increase in earnings beyond needs and reasonable wants leads to an increase in surplus and thus the propensity to save as well as invest. Thanks to campaigns like “mutual fund sahi hai” and a dramatic increase in platforms that allow anyone to invest in mutual funds, many in their late 20s and early 30s have started. According to the Mutual Fund industry body AMFI, Investor Accounts went up from 4 Crores to 8 Crores, between December 2014-December 2018.

The time frame of your goals and needs will also help you choose the right kind of mutual fund.

There has also been an increase in platforms providing access to direct mutual funds. This has proved quite attractive to a generation that uses apps for everything. These platforms, and direct mutual funds in general, are great for those who know what they are doing or have access to qualified financial advisors. For the average 30 something starting an SIP, it’s not as simple.

Here are three things they need to watch out for if they are investing without the help of a financial advisor or are not yet well versed with investing.

1. Don’t invest without understanding the fund you are investing in

It would not be surprising to find multiple funds in the portfolios of the investing Indian millennial. However, many a times they do not fully understand the mutual funds they have gone for. After the recent SEBI categorisation of mutual funds, things might have become slightly clearer, but not for all.

Funds like hybrid mutual funds, or Large cap and mid cap mutual funds aren’t always well understood, especially in the context of goals. This can lead to serious mistakes, and realisations often come late.

When in doubt, stay simple. Invest in mutual funds that you understand easily enough, and which align to your goals.

2. Don’t invest without knowing what the use will be

Apart from saving and investing because the money is there, there seems to be little guiding individuals, especially those who have no demands from parents or spouses. “It’s for the future” is a common answer.

While this is great for starting, it is not enough to get ahead in this journey. When investing, goals give you both clarity and purpose. Creating goal buckets such as for emergencies, for retirement, buying a house, for children etc. help guide your savings where they are most needed. This also helps one choose the right mutual fund for the job.

3. Don’t invest without having a timeline in mind

Warren Buffett once said that his favourite holding period is “forever”. That’s a great line and hints at the importance of long-term investing but knowing when your investments need to provide for specific needs helps a lot.

The time frame of your goals and needs will also help you choose the right kind of mutual fund.

For example, if your goal is to have enough money to retire on (which is 25x of your expenses), and unless you earn way more than the average joe, you need at least two decades of earning, saving, and investing. This means the best type of mutual fund for this goal is an equity mutual fund. An emergency fund, on the other hand, needs a short-term debt fund like a liquid fund.

The fact that you have started to invest is great in itself and you are to be congratulated. Now, though, you need to know the what, why, and when. Take help or read up and invest wisely. Happy investing!

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