Mutual Fund Principles for Beginners:Teachers’ Day is more than just a celebration of the mentors who shaped our school days. 👩🏫👨🏫 It’s also the perfect reminder to think about the financial mentors in our lives — the advisors, guides, and money experts who help us make better investment decisions.
Just like great teachers share timeless wisdom, financial mentors too have a few golden principles they pass on to new investors. And if you’re someone starting out in mutual funds, these principles can help you avoid common mistakes and build a strong foundation for your wealth journey.
In this article, we’ll walk through three key mutual fund principles that most financial mentors would recommend beginners to follow. Each of them is simple, practical, and rooted in long-term investing wisdom.
📌 1. Align Your Investment with Your Asset Allocation
One of the first lessons financial mentors teach is: don’t chase returns, chase your goals.
👉 Rather than running after the latest “best performing” fund, investors should match their investments to their personal financial goals. For example:
- 💼 Saving for retirement in 25 years? Think about long-term equity funds.
- 🏠 Planning to buy a house in 10 years? Go for a mix of debt and equity.
- 🎓 Want to fund your child’s education in 15 years? Choose growth-oriented funds.
To make this practical, mentors often suggest putting a number to your goal. Using tools like the Present Value (PV) formula, you can calculate how much you need to invest today to achieve that target. This approach turns vague dreams into concrete financial plans.
Shaily Gang, Head of Products at Tata Asset Management, shares an important reminder:
“Something will always outperform or underperform. Chasing the asset class which performed the best in recent history and shifting allocations accordingly can be a disaster for one’s portfolio. If the portfolio is diversified, some asset classes will always underperform. But to each asset class that underperformed, you would have another one which outperformed.”
🔑 Key takeaway: Stick to your asset allocation. Diversify, stay patient, and let your portfolio work for your goals — not for short-term market trends.
📌 2. Build Your Portfolio Based on Holding Period
The second golden principle is about time horizon. Financial mentors emphasize that you should always pick mutual funds depending on how long you can stay invested.
Here’s a simple breakdown:
- ⏳ 1–3 months: Choose liquid funds instead of overnight funds.
- 📆 3 months – 1 year: Go for money market funds.
- 📈 3 years or more: Consider equity funds for long-term wealth creation.
Why does this matter? Because different funds carry different levels of risk and return. Debt funds, for instance, are linked to something called Macaulay Duration — which tells you the average time until the portfolio’s cash flows are received. If you match your investment horizon with the right fund, you lower the chances of being forced into losses.
As Ms. Gang explains:
“Mapping your holding period to the ideal period of funds is important. In case of debt funds, ideal holding period is largely related to the Macaulay duration. In case of equity funds, longer the holding period, better is the compounding and lower the probability of negative returns.”
🔑 Key takeaway: Match your fund to your time horizon. The longer you stay invested, the more compounding works in your favor.
📌 3. Always Maintain an Emergency Fund
The third principle is all about safety nets. Life is unpredictable, and financial mentors strongly advise keeping an emergency fund worth at least 8–10 months of your monthly income.
Think of it as your personal safety cushion. 🛡️
Why is this so important? Because emergencies — like job loss, medical issues, or sudden expenses — can force you to redeem your mutual fund investments at the wrong time. Having emergency money handy prevents you from disturbing your long-term investments.
For example:
- If your monthly income is ₹50,000, aim to keep at least ₹4–5 lakh aside in liquid or ultra-short-term funds.
- This ensures you’re covered for sudden expenses without touching your retirement or education funds.
🔑 Key takeaway: An emergency fund is not an optional luxury — it’s a financial lifeline. Build it before you start investing aggressively.
🌱 Why These Principles Matter for Beginners
Starting your mutual fund journey can feel overwhelming. Markets fluctuate, returns vary, and there’s always a temptation to follow “hot tips.” But financial mentors know from experience that the basics matter the most.
- Aligning your portfolio with goals ensures you stay disciplined.
- Choosing funds based on time horizon helps you avoid mismatches and unnecessary risks.
- Holding emergency funds keeps you financially secure even in tough times.
Think of these three as your “foundation subjects” in personal finance. Just as teachers helped us master math, science, or literature, financial mentors help us master the ABCs of investing.
🎯 Final Thoughts
On this Teachers’ Day, while you thank your favorite school teachers, take a moment to appreciate the financial mentors who help you grow smarter with money.
Remember:
✨ Don’t chase returns — chase your goals.
✨ Match investments with your time horizon.
✨ Always keep an emergency fund handy.
By following these three timeless principles, beginners can start their mutual fund journey with confidence and clarity. And just like great teachers, these lessons will stay with you for life.
📊 Quick Recap: 3 Mutual Fund Principles for Beginners
🔹 🎯 Align with Goals – Match your investments with financial goals, not market trends.
🔹 ⏳ Match Holding Period – Pick funds based on your time horizon for safer returns.
🔹 🛡️ Keep Emergency Fund – Save 8–10 months of income to handle unexpected expenses.
👉 Follow these 3 rules, and your mutual fund journey will be smoother, safer, and smarter. 🚀
