It’s a common myth that investing in mutual funds is only appropriate for those in their 20s and 30s. While those starting at a young age have the advantage of time on their side, it’s not too late for 40-plus investors either. Getting an early head start on your investments can boost your chances of leveraging the power of compounding over the next several decades. However, if you are a late beginner in the 40s, you can still invest in MFs and build a sizable corpus for retirement over the next 15-20 years. This guide on mutual fund essentials for 40-plus investors will help you understand how you can invest in MFs to accumulate a wealth corpus.

While it's recommended to start your investment journey as early as possible, it's never too late to rectify that error. So, here’s a few steps you can follow to stream your investment journey as a 40-plus investor:

Step 1: Equip yourself with knowledge

Regardless of your age, the first step to investing in mutual funds should be focused on educating yourself about the investment avenue. This includes reading about the types of mutual funds, what each category has to offer, and the purpose each serves. If you’re a 40-plus investor looking to start investing in MFs, start by familiarising yourself about the various investment jargons to make the investment process smoother.

Market regulator, SEBI (Securities and Exchange Board of India) and nodal MF association, AMFI (Association of Mutual Funds in India) have various resources available online to simplify mutual fund-related concepts. Distributor websites also publish resources on mutual funds as part of their investor education campaigns. Going through different resources can help you gain insights into how MFs work, their return potential, underlying assets, taxation norms, and more. That said, not having complete knowledge on the subject should not prevent you from beginning your investment journey. Attaining complete mastery of the subject in a short span of time can be difficult and you should ensure this does not become a roadblock in your investing journey causing further delays.

Step 2: Ascertain your risk profile

When you read about different types of mutual fund scheme and categories, you will understand that each type carries a different level of investment risk that’s also correlated to the return expectation. Therefore, the second step of your investment journey is to ascertain your risk profile to invest accordingly. Risk profiling is the act of quantifying your willingness, ability, and need to take on risk. Your investment portfolio and asset allocation is determined based on how capable and willing you are to take on investment risks. In simple words, you must select mutual funds that complement your risk profile.

Your risk profile is a sum total of factors like your risk capacity, risk tolerance, propensity to take risks, perception of risks, and need to take risks. Risk capacity is the financial risk that you can afford to undertake given your current financial conditions, while risk tolerance refers to your emotional willingness to take on risks. Propensity to take risks is an evaluation of how much risk you have historically taken, while your perception of risks is an intangible factor that sums up how you generally react to market fluctuations. Lastly, need to take risks is the amount of risk you must undertake to achieve your set goals. For instance, if you are financially stable and have a decent corpus saved up, you may have a high risk capacity. However, if you are conservative by nature and uncomfortable with market fluctuations, you may not be willing to take on high risks in the hope of high returns.

Step 3: Understand the basics of asset allocation

Once you have arrived at your risk/return profile, you must ascertain an appropriate asset allocation mix per your age. Asset allocation is the act of dividing your investment across different asset classes like stocks and bonds to balance risks and optimise returns. In simple words, your asset allocation strategy will determine what proportion of assets you need to invest in equity funds, debt funds, and alternative investments.

For instance, if you’re a 40-plus investor who falls within the high-risk/high-return profile, you may be willing to take on more risks for potentially greater returns. In this case, about 80%-90% of your investment portfolio will include allocations to equity funds spread across large-cap, mid-cap, and small-cap funds, while the remaining 20%-10% may be allocated to debt funds. Conversely, if you fall within the low-risk/low-return profile, you may be averse to risks and fine with comparatively low returns. In this case, your investment portfolio may include a higher mix of debt funds with AAA and AA-rated instruments and a miniscule proportion of large-cap equity funds. Apart from the two extremes, you can also fall somewhere in the middle and adopt a balanced asset allocation approach with a mix of equity, debt, and hybrid funds.

• Beginning mutual fund investments in your 40s can still help you build a substantial retirement corpus.
• It’s never too late to start your investment journey if you educate yourself about MFs and determine your risk profile.
• Selecting an appropriate asset allocation strategy helps you pick mutual funds that align with your financial goals and risk profile.

When it comes to investing, it's never too late to start. Age is just a number and you can start your investment journey even in the 40s. At any age, all you need is a well-defined financial plan and strategy to achieve your set goals. Mutual funds are versatile investment options that offer you wealth building opportunities across the risk/return spectrum. With sufficient knowledge and an appropriate asset allocation strategy, you can master MF investments at any age and enjoy capital appreciation. Simply remember to compare mutual funds thoroughly before investing to optimise your chances of earning risk-adjusted returns.

If you’re a 40-plus investor looking to start your MF journey, head to the Bajaj Finserv Mutual Fund Platform. This smart and reliable one-stop platform allows you to invest in MFs in a few easy steps. It also offers you a repository of educational articles to grow your MF knowledge. You also have access to free tools like the Mutual Fund Calculator to estimate returns on your investment and plan ahead accordingly!