Mutual fund investments might seem complicated to first-time investors. Regardless, understanding how mutual funds work is the first step in your investment journey.
How to invest in mutual funds?
Adhering to the following points will aid you in choosing the right mutual fund for your portfolio and accumulate wealth over time:
Identify the objective of investing
You need to start by defining your financial goals. This is the primary and most significant step towards investing in mutual funds. These can be buying a new car or a house, saving for your child’s education or marriage, planning an international holiday, retirement, etc. Identifying your investment objective would also help zero in on the mutual fund investment options based on factors like the level of risk, lock-in period, payment period, etc.
Duly fill the KYC (know your customer) form
If you wish to invest in a mutual fund scheme, you need to comply with the KYC guidelines. These include submitting copies of the PAN (permanent account number) card, age proof, proof of residency, etc., as specified by the mutual fund house.
Read up on all the available options
The mutual fund market is literally swamped with options and there are schemes to suit the needs of all investors. An investor is advised to do his/her homework by exploring the market and understanding the different types of schemes available. The mutual fund you choose should be aligned with your investment objective, investment horizon, risk appetite, affordability, etc. You can also consider seeking the help of a financial advisor if you want to invest in mutual funds online in a hassle-free manner. These financial advisors will ensure that you fetch maximum returns on your investments.
Consider the risk
You should be wary about the risks associated with mutual fund investment. Equity schemes are associated with higher risk compared to other securities. If you do not have a high risk appetite, you should consider investing in debt funds.
You can invest in mutual funds via the lumpsum or SIP (Systematic Investment Plan) mode. While both avenues are widely popular among investors, the latter has the upper hand as SIP investments can be afforded by everyone.
Under the SIP method, an individual contributes a fixed amount periodically over an investment tenure. The minimum SIP amount is Rs500. An individual can use a SIP calculator to identify the amount of money required to invest in their desired mutual funds. For e.g., you can invest Rs1,000 per month in XYZ mutual fund. Each month, on a date predetermined by you, this amount will be debited from your bank account and credited to your desired mutual fund account. This will then be further parked in the various instruments that form your portfolio.
SIPs help achieve your long-term financial goals. Hence, it is always advised to align your portfolio with your SIP investment strategy as it results in better execution of your financial goals. Happy investing!