Warren Buffett’s 7 golden rules for mutual fund investors

When it comes to investing in mutual funds, new investors often think they need prior expertise to venture into this space or the help of an expert to choose the right fund. But Warren Buffett, one of the world’s most successful investors, thinks differently.

Buffett, the 94-year-old billionaire and CEO of Berkshire Hathaway, believes that real success in investing is achieved when we ignore the market noise and work patiently. Even though he himself has never invested directly in a mutual fund, his ideas and investment principles are relevant for fund investors today.

In today’s era, when everyone is in a hurry to change funds or make decisions by looking at the returns of a few months, Buffett’s investment approach throughout his life can be a lesson for mutual fund investors: choose good funds and give them time.

Here are Buffett’s 7 golden rules for investors — timeless teachings that are just as relevant for mutual fund investors today as they’ve ever been.

1. Low-cost index funds are the smartest equity investment, feels Buffett

In a letter to shareholders in 2016, Warren Buffett said, “When trillions of dollars are held by Wall Street managers who charge huge fees, the real profits usually accrue to the managers, not to the investors.”

That’s why Buffett has always been an advocate of low-cost index funds, especially for small investors who can’t time the market or be immersed in research all the time.

He has even said that after his death, 90% of his wealth should be invested in S&P 500 index funds — and that too low-cost ones. This reflects his deep belief that index funds can deliver stable returns over the long term, at a low cost.

Also read: Warren Buffett’s blueprint to beating the market and building wealth in 2025

What does this mean for Indian investors?

There are now several low-cost Nifty 50 and Sensex index funds available in India. Especially in large-cap funds, where it is difficult for active funds to consistently beat the benchmark, index funds can prove to be a sensible option.

Advantages:

-Very low expense ratio

-Transparency and simplicity

-Long-term stability and market-matching returns

-Better tax efficiency than active funds

Advice for investors:

If you are bothered with fund selection, do not want to depend on the performance of the manager and want good returns at low expenses, then index funds are a must-have in your portfolio.

2. The best investment time zone is ‘forever’, believes Buffett

Warren Buffett has a very famous quote: “Only buy something you would be happy to hold if the market closed for the next 10 years.”

The entire philosophy of long-term investing is hidden in this one sentence. Mutual fund investing is not an instant thrill or a shortcut to riches — it is a goal-driven journey, whether it’s retirement dreams, a child’s education, or building wealth.

From Buffett’s mantra, one apparent message mutual fund investors can draw is to stop switching mutual funds too often and not try to time the market. He suggests choosing good funds — those with a long track record, and that follow basic investing principles.

Once you choose, stick with that investment — whether the market goes up or down, says Buffett.

The market will fluctuate, but investors who stay steady and let time work in their favor are the ones who create real wealth, believes Buffett, one of the greatest investors of all time.

Patience, discipline and long-term thinking are the keys to mutual fund investing. Buffett’s philosophy is as relevant today as it was decades ago. His message for investors is ‘give time to a good investment, and time will be your best friend’.

Also read: Why Warren Buffett has been a net seller of stocks for 10 straight quarters

3. You don’t have to be a genius to be a good investor, Buffett says

Buffett has always explained investing in simple terms, not in complex terms. He believes that investing success comes not from high intelligence (IQ) but from discipline and restraint. In a letter to his shareholders in 1996, he said:
“Investors should be able to separate themselves from the fear or excitement of the crowd, and focus on a few basic principles.”

The same applies to mutual fund investing since you don’t need a CFA degree or have to read every company’s balance sheet, or have to understand the market movements every day.

You only need three things: Patience – so that you can survive a downturn; regular investments – through SIPs; realistic expectations – so that you don’t panic at every downturn and get greedy at every upturn.

Buffett’s biggest lesson is that even ordinary people can achieve extraordinary results if they follow simple things consistently and with discipline.

4. Don’t watch the market all the time, Buffett cautions

“Watching the market too closely can be harmful,” he always held this view. In many interviews and speeches, he has said that keeping an eye on the fluctuations of the stock market every day makes investors emotional. The tendency to sell quickly out of fear when there is a decline and to buy greedily when there is a boom can cause harm.

Buffett has a famous statement: The stock market is a device for transferring money from the impatient to the patient.

This message is very important for mutual fund investors. Tools like SIP (Systematic Investment Plan) can be of real benefit only when we follow them with time and discipline – and not spoil our thinking and planning by looking at the NAV (Net Asset Value) every day.

Buffett had also reiterated in his 2014 letter to shareholders that it is not wise to panic and take decisions due to market volatility. He said that if you have chosen a good fund or investment, then sticking to it is the best decision.

What should mutual fund investors do?

-Do not panic by looking at NAV or market news every day;

-Automate SIP and let it run;

-Give the investment at least 5-7 years;

-In the fall, instead of stopping the investment, consider it an opportunity;

Remember, the real profit comes to those who “invest with a calm mind and let time work in their favor.”

Also read: Warren Buffett’s 20-punch rule: The crorepati blueprint

5. Be fearful when people are greedy, and greedy when people are fearful – Buffett’s famous quote

This is perhaps the most famous and most repeated quote from him — and its depth is as important as its popularity. Usually Buffett says it in the context of the stock market, but this mantra is also very accurate for mutual fund investors.

When the market falls, words like ‘great recession’, ‘market chaos’ flood the newspapers and news channels. Investors panic, stop SIPs or start withdrawing money from funds. But this is the time when smart investors see an opportunity.

According to Buffett, “Fear is your friend when investing in quality at a discount.”

What is the lesson for mutual fund investors?

Don’t panic when the market falls. Keep the SIP going — because you are buying more units at a lower price. If you have extra money, then it is the best time to make lump sum investments during market downturns. History has shown that investors who continued to invest during downturns have got the best returns in the long term.

Patience and courage are your biggest friends in market volatility. Investing wisely in an environment of fear is the real “Buffett style”.

6. The real risk is not knowing what you’re doing, says Buffett

The Oracle of Omaha has another profound but very grounded principle: “Risk comes from not knowing what you’re doing.”

Many investors in the market invest in a fund just by looking at its past returns – without understanding the strategy of that fund, how much risk it takes, and how long the time horizon should be. This is the mistake Buffett has always warned against.

What does this mean for mutual fund investors?

-It is important to understand the category of each fund (e.g. large-cap, small-cap, sectoral, international)

-Small-cap or sectoral funds are more volatile — they need to be held for a longer period

-International funds are subject to currency risk and different market movements

-Most importantly, past returns are not everything. It is not necessary that the fund that was on top last year will also perform well next year.

Buffett always says, “The first rule of investing is don’t lose money, and the second rule is don’t forget the first.”

So, it is better to understand, think, and then invest rather than blindly jumping into a fund.

Also read: Warren Buffett’s cash cushion formula that 90% of Indian investors ignore

7. Predictions tell a lot about the forecaster, but nothing about the future, Buffett says

Warren Buffett has always ridiculed market predictions. He says that people who claim they can predict the market’s next move are deluding themselves and others.

He quipped: “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

What this means for mutual fund investors is: It is not wise to keep switching funds based on 6-month or 1-year rankings. If a fund has given better returns in the last few months, it does not mean it will continue to do so.

Summing up…

Buffett’s investment principles may come from the world of the stock market, but the core essence of them is equally relevant for mutual fund investors.

Whether it is about low-cost index funds, staying invested for the long term, staying away from the daily vagaries of the market or maintaining discipline and patience in investing, every mantra of the Oracle of Omaha teaches us that real wealth is created by those who remain calm even in fear and restrained in greed.