BubblyMuffin

Need help investing in high risk MFs

Hello good people of grapevine,

I have recently started my full-time job as a software engineer, and wanted to start my journey into investing.

After doing a bit of research, I feel SIPs in mutual funds is the way to go forward at this point. For now I want to start putting 20k into MF SIPs every month. I took a look at a few MFs which were very high risk but over a period of 3-5 years yielded great returns (50%) as well. While the low to moderate risk MFs yielded low returns (5%).

Though the risk is high, but seeing stable returns over a large period of time, how safe is it to invest in very high risk MFs and not incur losses?

Any other advice is also thoroughly appreciated Thanks fellow grapeviners.

risk appetite: moderate to high investment horizon: 5-10 years

12mo ago

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FloatingQuokka

Linkedin12mo

Understand one thing that Mutual funds work on a Net Asset Value. Basically the unit in which the Mutual fund trades. In your case, I would like to highlight that the market fluctuated a lot in and post COVID period and hence all the Mutual funds would show a very steep uptrend graph. Another thing to note is that even mutual funds require a good entry point. Basically when the NAV is low or is on a slight uptrend after a deep fall. This is time to start in that mutual fund. And once you start please be invested for at least 3 years.
On your question regarding high risk, keep in mind that mutual fund's NAV will fluctuate like hell and you may even see a year with no profit in that fund. But again that's where being invested for 3 years comes into help.
As of now, I would recommend you start with two small cap high risk funds (7k each pm) and 1 large cap fund high risk (6k each pm). I would also suggest to monitor the NAV on a Monday and then pump some one time investment like 5-10k in that month. Basically the idea is to buy more when the NAV is low or stable.

BubblyMuffin

Amazon12mo

Amazing points I was totally unaware of to look at before investing. Thanks a ton for these tips and the detailed answer, I'll surely take a look at the SIPs that you have suggested :)

SparklySushi

Microsoft12mo

To get more realistic picture of these MF returns, check 5 & 10 year returns of these funds till 31st Jan 2020. Post that, every tom dick and harry has made money due to covid boom.
Also, check the rolling returns of the funds rather than point to point returns. Since you've mentioned 50% returns, it I'm guessing you are looking small and midcap funds. You need to remember that these are cyclic, i.e. you'll have long periods of underperformance or flat returns (check performance of small and mid caps from 2017 ± 6 years), and then suddenly get insane returns making the CAGR very tempting. Unless you are certain you are investing during the trough phase, it's better to have a balanced portfolio for stable and consistent returns.

BubblyMuffin

Amazon12mo

These points help a lot, will definitely check these before investing! Thanks a lot for the detailed answer :)

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