Imagine asking a travel agent, “How should I choose my mode of transport?” The first thing he/she will say is, “Depends on where you want to go.” If I were to travel to a distance of 5 kms, an auto rickshaw might be the best option, while for a journey from New Delhi to Kochi, a flight might be the best. A flight would not be available for a short distance and an auto rickshaw would be highly uncomfortable and slow for a long-distance journey.
In Mutual Funds too, the starting point must be- What are your requirements?
It begins with your financial goals and risk appetite.
You’ve got to identify your financial goals, first. Some Mutual Fund schemes are suitable for short term requirements or goals, whereas some might be better for long term goals.
Next comes your risk appetite. Different people would have different risk appetite. Even husband and wife may have joint finances but different risk profiles. Some are comfortable with high risk products, whereas some are just not.
You can get help from financial planners to assess your risk appetite.
SOURCE: Mutual Fund Sahi Hai