Mutual Fund Investment Guide: A substantial proportion of Indian investors were unfamiliar with mutual fund investing just a few decades ago. Today, however, the situation is entirely different. Mutual funds are now considered a straightforward and uncomplicated way to invest that may help grow wealth, with a continuous increase in mutual fund investors in India year after year.
So, if you’re wondering where to start with mutual funds, this is the place to start.
- What is a mutual fund?
- How do mutual funds work?
- Benefits of investing in mutual funds?
- Things to consider as a first-time investor?
A mutual fund is a type of financial vehicle that combines money from a group of participants to buy various securities. However, most individuals consider mutual funds to be an investment option. In actuality, you may use an investment vehicle to invest in a variety of financial products such as stocks, bonds, gold, and money market instruments.
When you purchase a unit in a mutual fund, you acquire minor ownership in all of the fund’s investments. Mutual funds may be an excellent investment option due to their simplicity of use and the benefits they provide.
A mutual fund is essentially a trust that pools funds from a group of like-minded participants.
Numerous common asset plans are overseen and worked by Asset Management Companies (AMCs). Each scheme has a particular investment aim that caters to specific investment requirements.
The money gathered from investors is invested in numerous channels such as stocks, gold, bonds, and other assets based on the fund’s aim. Each fund is overseen by a financial expert known as a fund manager, whose purpose is to maximize the returns on the fund’s investments. The revenue earned by the fund is split and dispersed proportionally to the investors.
1) Professional expertise
When you invest in a mutual fund, your investments are managed by a professional fund manager. Every fund manager is supported by a team of researchers that monitor the market in real-time. Fund managers make appropriate modifications to your mutual fund portfolio based on their inputs in order to enhance returns. This strategy may be appropriate for paid individuals (and company owners) who do not have the time to monitor markets or make timely investments.
Investing in mutual funds may be a simple and painless process. The entire procedure is paperless and can be completed from the comfort of your own home. And, after you begin your investing journey, you can track your holdings and, if required, make modifications using your computer or smartphone.
3) Begin with small investments
Many people believe that you may only invest in mutual funds if you have a lot of money. In actuality, you may start investing with as little as Rs. 500 every month. A Systematic Investment Plan (SIP) can assist you in investing small sums on a regular basis. If your income rises over time, you may raise your SIP allocation as well. You not only save your investing fees, but you also profit from the power of compounding.
Diversifying your portfolio is critical if you want to reduce your exposure to risk and loss. A well-diversified portfolio can withstand the bad performance of a single company or sector, therefore protecting your entire investments. Mutual funds are constructed in such a way that they provide enough diversity.
A mutual fund that tracks the S&P BSE 100 index, for example, might expose your investment to up to 100 stocks in a single fund. This might be an easy and low-cost strategy to diversify your portfolio.
5) Tax benefits
Section 80C of the Income Tax Act allows for tax breaks on investments in particular financial instruments. Mutual funds are included in this category as well.
You may now claim a tax advantage of up to Rs. 1.5 lakh per year in Equity Linked Saving Schemes (ELSS), which have one of the lowest lock-in periods. Because of these factors, ELSS funds are a popular tax-saving alternative among investors.
When investing in mutual funds, set precise goals for yourself. Make a list of your financial goals, budget, and time horizon for achieving these goals. This exercise might assist you in determining how much money you should set away each month for investing. To meet your financial goals, you may need to lower your spending in other areas. And these calculations are only achievable if you put pen to paper and write out your financial objectives.
Things to consider as a first-time investor
There are several mutual fund kinds and classifications, including equity funds, debt funds, and hybrid funds, among others. Funds are also classified according to their market capitalization. Selecting the right fund type is critical to achieving your objectives. If you are new to investing, you should start with debt funds or hybrid funds to reduce your risk exposure. After that, select a fund that corresponds to your investment objectives and risk tolerance.
Past performance is, without a doubt, an important thing to examine before investing in a mutual fund. However, it does not have to be the only criteria. Many novice investors invest in a fund based on its one-year performance, which is a risky strategy. This is due to the fact that certain new and unknown funds may provide fair returns in the short term but not in the long run. Looking at a fund’s performance over the last five years or more is a good technique to ensure its stability. Consider additional aspects such as the expense ratio, the track record of the fund manager, and the track record of the AMC. This might assist you in making a more informed investing selection.
Investing in ELSS allows you to claim a tax deduction of Rs. 1.5 lakh every year. However, you should be aware that mutual funds provide much more than tax breaks. Investment discipline and the ability to build a sizable corpus for your future are just a few of the advantages. Consider mutual fund investments for the long term rather than as a last-minute fix before tax deadlines.
Systematic Investment Plans (SIPs) or a single amount can be used to invest in mutual funds. However, as a beginner investor, SIP may be a better alternative. A SIP calculator may be used to calculate and estimate the returns on your SIP investment.
Investing with a lump amount necessitates market timing and investing at the proper time. If you invest while the market is at its peak, you may lose money. In general, lump-sum investments are best suited for seasoned investors.
Notwithstanding, with SIPs, you might contribute a specific measure of cash consistently (month to month, quarterly, semi-every year, and so on) paying little mind to how the market performs. This strategy ensures that you have the option to invest at various market levels. As a result, your returns may increase over time.
Mutual funds have the potential to provide competitive returns. However, this does not imply that you will receive a guaranteed return. Since the profits are connected to the market’s exhibition, you could lose cash on your ventures when the market performs inadequately. Therefore it is basic to pick your assets cautiously.
There are several mutual funds available on the market. Choosing the correct fund from among all of the available possibilities might be perplexing for novice investors. Consult a financial counselor if you are unclear about how and where to invest. A financial advisor can assist you in making a decision based on your objectives and financial situation.
How to invest in mutual funds
Investing in mutual funds is a simple and easy process.
To begin your mutual fund investment adventure, follow these steps:
Step 1: Go to www.franklintempletonindia.com and open a mutual fund account.
Step 2: Finish your KYC procedures (ignore this step if you have already done it)
Step 3: Fill in the blanks with the essential information.
Step 4: Determine the funds in which you want to invest depending on your financial objectives.
Step 5: Choose the proper fund and transfer the funds.
Step 6: If you invest through a SIP on a monthly basis, create a standing instruction with your bank.
A notable monetary saying says that to become affluent, you ought to have the option to bring in cash even while you rest. Putting resources into shared assets can be an easy method of accomplishing this objective. At the point when you put resources into shared finances consistently, your corpus develops. It could have a sluggish beginning, yet with time, your venture might develop generally. Distinguish your objectives, select the fitting assets and begin contributing.