How To Invest In Mutual Funds?
Posted by Nirav Singhaniya on September 30th, 2019
Mutual funds are one of the most popular investment options for wealth creation and tax planning among investors. Investors can choose from a wide variety of mutual funds based on their budgets, investment appetite and financial goals.
These funds help you create a corpus at a much faster rate as compared to conventional investments instruments like fixed or recurring deposits. Investing in mutual fund is generally easy, but you should consider taking help from a financial advisor, especially if you are a new investor. Before you understand how to invest in mutual funds you need to know how they work.
What is a mutual fund?
A mutual fund is an investment vehicle that pools money from several investors and invests them in stocks, bonds, government securities, etc. The investments are managed by asset management companies or AMCs, who employ fund managers and experts.
How do mutual fund investments work?
When you invest in mutual funds, you buy units of a scheme. The price of each unit is called NAV or Net Asset Value. NAV is calculated as the total corpus of the fund less expenses divided by the number of units held by investors.
You can earn returns from mutual funds either in the form of dividends or price appreciation, which is reflected by an increase in the Net Asset Value (NAV).
How to invest in mutual funds?
Investing in mutual funds is easy. Here’s a step-by-step guide on how to invest in mutual funds.
If you are new to investing, one of the best ways to invest in mutual funds is through a broker. A broker will help you set up a demat-cum-trading account, advice you on the right funds to invest in, and enable you to buy and sell with ease – both online and offline.
Choosing the right funds:
Picking the right fund depends on your investment objective and your risk appetite. Risk is nothing but the amount of variation in returns you are comfortable to bear.
Mode of investment
You can invest in mutual funds either with a lump sum amount or through a systematic investment plan (SIP). Most new investors prefer the SIP route because it enables them to invest small sums regularly and build a corpus over a period of time. SIP reduces the risk of volatility and brings discipline into your investments. With SIP, you can even automate your investments through instruments like auto-debit and ECS.
Diversifying your investments
Mutual funds offer you great opportunities to diversify your investments. Don’t look at investments in isolation and consider building an investment portfolio. Your portfolio should include a mix of equity (different themes, market caps, sectors etc) and debt (liquid, short-term, long-term etc) funds. Make sure your portfolio is aligned to your investment goals.
Track your investments
Even though mutual fund investments are long-term assets, you must review and track your portfolio regularly to see if it is performing as you expected. Over time, your portfolio may get misaligned, and you may want to rebalance it. You can easily track your investments online through a portfolio tracker.
Final word: Now that you know how to invest in mutual funds, you should consider this investment option. As a new investor, you should start off with a small investment amount with a low risk appetite. You can gradually increase both, your investment amounts and your risk appetite as you begin to understand how mutual fund investments work.
About the AuthorNirav Singhaniya
Joined: May 9th, 2019
Articles Posted: 14
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