Navigating The World Of Mutual Funds
One fine day, Kapil asked his friend, Arun, who had just become a broker, about mutual funds.
Arun, to sell these funds, tried to make a fool of Kapil by stating wrong facts about mutual funds, and instigating him in buying them. Kapil being a dumb person, in this context, bought some shares and faced huge losses.
He then started doing research, before ever investing in mutual funds.
Why Mutual Funds
Mutual funds are a low-cost, well-diversified, and tax-efficient way of making your savings grow. Mutual funds are considered to be the ideal way to go about investing your money. People believe that investing is a game of the rich, but that is not at all the case.
Table Of Content
- Getting yourself ready
- Choosing Funds
- Which funds?
- Whether to do it yourself or ask someone?
- Terminologies
- Buying Funds
- Monitoring
- Other options
Mutual funds are good for investment purposes, savings, and having a portion of your money for the future.
Getting yourself ready
Despite the suitability and simplicity for small investments, mutual funds are not the preferred vehicle for most other investors because neither are they aware of it, and they also find it too complex to handle.
Set up a bank account. Have a KYC (know your customer) compliance. KYC is known to be the process of verifying the identity of the investor. You can always invest through a direct mutual funds house.
Also, you need to have a PAN card and an AADHAR card number for this to work.
Choosing Funds
There are multiple varieties of options in the market to choose from. Mutual funds are there to simplify the job of investing for you. Sometimes, the task of choosing the right kind of mutual funds can be very overwhelming, since you don’t know anything about investments.
There are debt and equity mutual funds which are both different categories. The first ones offer slower but steady growth while the other one invests in shares, which have very high fluctuating rates but can also give higher returns.
Debt ones are suitable if you want to go for short-term goals while equity is the ones where investments can go up to five years or more.
If you are a first-time investor, you can always go with equity which would be a better choice for you.
Which funds?
There are certain kinds of categories under the debt-equity ones as well. You come to this o e after you have decided whether to choose the debt or equity ones.
It is important to understand that you cannot ever choose mutual funds on a whim or a random basis. You always need to be careful and plan according to your needs, before choosing the kind of mutual funds to invest in.
You can always go for funds that have performed quite well consistently over some time, instead of investing in season’s chartbusters. Look for ratings before investing in any kind of funds, which would make your job easier.
Whether to do it yourself or ask someone?
The next option is a crucial one. Think carefully and then decide as to whether you want to invest in it yourself according to how much you would want to satiate your risk appetite, or you could always go about asking someone, a friend, or an expert in the field.
Correct guidance can go a long way in this risky field, but with the right knowledge, it can work wonders in your favor.
If you have little to no knowledge about handling your finances, you can always opt for the safer option of going with the help of a “stock guru”.
That can also be risky because trusting just anyone can be a bold move, which not everyone is willing to make.
Terminologies
There are various terms in every field, related to the particular field. In the world of mutual funds, there are ‘stuffers’ and ‘stuffies’. The depositors are the stuffies down whose throats high-commission schemes are stuffed.
Buying Funds
After understanding the types and terminologies concerning mutual funds, you can come to the step of buying them. You can always go buy mutual funds either through intermediaries or directly through a fund house.
To directly invest there is a long process that you need to go through, submitting filled forms, cheques, etc. or you can always go for the more convenient way of doing everything sitting at the comfort of your home, through the online process.
Going through an intermediary can also be okay like banks, financial advisors, brokerages, online portals, and many more options just waiting to be explored.
Also, think about how much would you want to invest in, and at what frequency. Here, two options can be explored, lump-sum investment or Systematic Investment Plan (SIP). Lump-sum means investing all your money in one go. SIP, on the other hand, involves investing a fixed amount at a fixed frequency which is generally in a month.
Monitoring
Keep a vigilant eye on how well your investments have been doing. But getting obsessed with them is never a good idea. Let things unravel at their own pace. Ever since the advent of modern technology, you can always get regular updates regarding the ups and downs of the market.
But this can become quite overwhelming for you. You only need to look at your investment, once a month, which is more than enough. You can go for a detailed reviewing app for this purpose, which would help you ease down.
Other options
It happens a lot of times that your investment doesn’t yield fruit. You can always go for other options which are available for you. You can sell your funds, if they start giving out poor performance, or if your financial goals are met.
Observe, if the fund is consistently giving out poor performance and the price is constantly dropping, maybe it’s time to take it off.
But make sure the bad performance is not just for a month, but rather for a few consistent months. Then surely, it becomes a good idea to sell the funds.
In other circumstances, if your financial goals are met, then also you can systematically plan to withdraw your funds from equity for two to three years, and shift them to debt funds.
Conclusion
Over the past few years, mutual funds have become a safe and dependable option to invest in. People have started gathering knowledge, researching mutual funds, for investment purposes.
If you are a new bee or a beginner and thinking about investing in mutual funds, it is always a good idea to do extensive research.
Mutual funds are not that complicated and scary as people have made them out to be. You just need to make sure that either you have sufficient knowledge, or you get knowledge from an expert to guide you through this process and make minimum mistakes.
