Invest in Mutual Funds? – Guide to Start

Invest in Mutual Funds? – Guide to Start

Nowadays, Mutual funds are buzzing word and these are pretty good products and being a first-time investor; you could be pretty confused. Understanding how mutual funds work is the first step towards your investment journey. Let’s discuss on Invest in mutual funds.

Mutual fund investments will give us the advantage of professional fund management and these risk-free investments. For every mutual fund scheme, the respective AMC’s (Asset management company) appoints an experienced fund manager to handle the entire funds and your investment portfolio on your behalf. So, there are expenses involved in this type of operational model and the AMC’s charges from the investor. For the complete story on charges click here.

In mutual funds, one can enter and exit anytime.

How do Mutual Funds work?

Mutual funds are the safest investment options that pool money from several investors under a particular mutual fund scheme managed by an asset management company (AMC). The pooled money is then invested in securities like equity shares, bonds according to the scheme’s investment objective.

The fund manager, appointed by the AMC, manages the investment portfolio as per the market movements to create wealth for investors. The fund house charges an annual fee called expense ratio from the investors to manage their portfolio. The investors make money through regular dividends/interest and capital appreciation.

Why should you invest in Mutual Funds?

Convenience

Investing in mutual funds is a simple process. It is a paperless process where you can monitor the market and make investments as per your requirement. Moreover, the facility of switching between funds and portfolio rebalancing helps in keeping your returns in line with expectations.

Low initial investment

You can have a diversified mutual fund portfolio in hand with investments as low as Rs. 500. You also have the option to invest either as a lump sum or a systematic investment plan (SIP). However, when compared to lump-sum investments, SIP lowers the overall cost of investment while unleashing the power of compounding.

Tax-saving

these mutual funds Section 80C provides tax deductions on specific financial instruments, and mutual fund is one of them. Equity Linked Savings Scheme (ELSS) has become a popular tax-saving option for Indians in the last few years, owing to its higher returns and the shortest lock-in period of 3 years.

Professional fund management

In mutual fund investing, your money is managed by a professional fund manager who is backed by a team of researchers. The fund manager formulates the investment strategy for your asset allocation. He/she will have real-time access to the financial environment and adjusts your mutual fund portfolio accordingly.

Things to consider as a first-time investor

Fix an investment goal

Defining your financial goals, budget and tenure plays a major role in your investments. This will help you decide how much you can set aside for investment and reevaluate your risk appetite. Investment always works best with a purpose.

Choose the right fund type

It takes more than reading about different mutual fund types to decide on the right mutual fund category. Experts typically recommend a balanced or debt fund for first-time investors as it comes with minimal risks while giving you higher returns.

Shortlist few and choose the best mutual fund

Analyze the few mutual funds and shortlist a few from them. With hundreds of mutual fund schemes within each category, you need to select the one that has performed well consistently for at least 5 years. Also, do not forget other factors like fund manager’s credentials, expense ratio, portfolio components, and assets under management while at it.

Diversify your portfolio

Consider investing in more than one mutual fund (not exceeding 3). A portfolio of funds will help you diversify across instruments and investment styles. It will also even out risks – when one fund underperforms, the other makes up for it without bringing down your entire portfolio.

Go for SIPs instead of lump-sum investments

Systematic Investment Plan (SIP) is the best bet for first-time investors.

You can’t build more wealth in a day, it needs more patience and proper understanding of markets.

If you are planned and having the patience to create your own wealth by investing few bucks from your regular income then SIP would help you to create more wealth!

Keep KYC documents updated

As per SEBI, KYC is very important for most financial transactions in India. To become KYC-compliant, you need your PAN card, valid address proof, and required financial proofs.

Get the advice from a mutual fund expert

They are thousands of mutual find advisers who are available to advise you regarding marking and it’s movements. it is good to take a few advise before you park your hard-earned savings into any mutual fund scheme.

How to Invest in Mutual Funds?

Nowadays it is easy to invest in Mutual Funds in a paperless and hassle-free manner. Follow below a few simple steps to start your investment journey right away:

Before starting this process please keep ready with mandatory documents.

  1. Sign up for an account at Zerodha
  2.  You need to enter the required information and complete the verification process.
  3.  Get your e-KYC done in less than ~4 hours.
  4.  Invest in your favorite mutual fund from amongst the hand-picked mutual funds
  5.  Download the Zerodha coin app and start investing.