Every article or post about investing that you come across lately could seem more like it always includes a tip to invest in mutual funds. This post is not one of them that tips you or suggests you start investing in mutual funds. Here, we are going to help you understand mutual funds and figure out if it’s the right kind of investment for you. And if you find it to be right, only then do we tell you how to get started with it.
What is a Mutual Fund?
A mutual fund is an investing organization that collects money from several investors into one enormous pot. The fund’s professional management invests the money in different assets like stocks, bonds, commodities, and even real estate.
An investor purchases mutual fund shares. These shares indicate an ownership stake in a portion of the fund’s assets. Due to their fee structures – a mutual fund is intended for long-term investors and need not be traded often.
Mutual funds are famous among investors because they are highly diversified. Diversification reduces the risk of an investment. Rather than researching and deciding on each sort of asset to add to a portfolio, mutual funds provide a single complete investment instrument. Some mutual funds may hold thousands of different assets.
Mutual funds are extremely liquid as well. Mutual fund shares are simple to purchase and redeem.
Now, it doesn’t mean if you see a good-performing mutual fund, you get your hands on it. For instance, if you see that Mirae Asset Mutual funds are outperforming the market, would you just put your money in it right away?
The first rule over investing is – never jump in head first.
Still, you have to know the best part about Mutual Funds.
What are the Perks of Investing in a Mutual Fund?
Mutual funds have various advantages. Among these are:
- Since the investments are made by specialists, investors are not expected to have a thorough understanding of the markets and how they operate.
- Investments in tax-advantaged mutual funds are tax-free under Section 80C.
- Investing in mutual funds is a seamless and paperless process. Investors could keep an eye on the market and make investments based on their needs. Furthermore, rotating between mutual fund schemes and portfolio rebalancing aid in maintaining expected returns.
- A mutual fund investment can be made in a flat sum or in installments.
- Risks are reduced by investing the funds in various equities and bonds.
- Investors can select a risk level from low, medium, or high-risk funds based on their risk tolerance.
- A professional fund manager manages your mutual fund investments, who are supported by a team of academics. The investment strategy for your asset allocation is developed by the fund manager. The research team selects appropriate securities based on the fund’s investing goals.
- Investing can also be done through SIPs (systematic investment plans), in which a certain amount is paid to the mutual fund each month.
- Mutual funds with no lock-in periods can provide liquidity when needed.
- There is no need to start investing in mutual funds with big sums of money.
Comparing Mutual Funds to Other Safer Investments
Gold: In the past year, gold had an average annual return of 7.78 percent, trailing only commodities, which had an average annual return of 8.3 percent. So, last year, the annual average return on gold was 0.4 percent.
Fixed Deposit: When you invest in fixed deposits, you will be getting returns somewhere from 5% to 7% per year.
Post Office Schemes: Through post office schemes, you can invest and receive somewhere around 5 to 7.5% returns every year.
Savings Account: Through a savings account, you can make from 3% to 5% every year on your standing balance.
Mutual Funds: The typical mutual fund return ranges from 5% to 15%, depending on the type of mutual fund. It is crucial to note that this is only a rough estimate, not the actual return from mutual funds. The average yearly return of mutual funds varies depending on market circumstances.
These are some of the top and most famous low to no risks investments in the modern day. Now that you have seen the returns from them, what do you think would be a great choice for investment?
If you are saying Mutual Funds at the Moment, we don’t want you to take a blindsided road. So, here are some things you would have to consider before investing in mutual funds.
Considerations Before Investing in Mutual Funds
- a) Your Individual Goals are Always Key: Financial goals, budget, and time horizon can have a significant impact on your investing. To determine how much money you can invest, you must first choose how much risk you are willing to take. Investing works best when done with a definite purpose in mind.
- b) Choosing the Right Fund for You: Choosing the right mutual fund category takes more than just reading about various fund types. Because of the low risk and consistent returns, first-time investors are frequently advised to participate in a balanced or debt fund.
- c) KYC is Mandatory No Matter What: You can’t invest in a mutual fund if you have not completed the Know Your Customer or KYC requirement. Most financial transactions in India are now subject to the Know Your Customer (KYC) protocol, which the government has required in an effort to prevent money laundering. You must have a valid PAN card and address verification as part of the KYC process.
- d) Fee and Other Charges Matter: All mutual funds have costs and fees that lower your investment returns. Did you know? Shop around and compare fees from different asset management companies.
- e) The Prospectus is Your Holy Grail: Before you can start buying shares in a mutual fund, read the prospectus carefully. The prospectus has data on the mutual fund’s investment objectives, risks, performance, and expenses.
- f) Risks are a Given, Know Them: Understand that you could possibly lose money investing in mutual funds, even low-risk ones. Mutual funds are not guaranteed investments or insured by any government agency.
If you’ve decided to start investing in mutual funds, don’t worry a lot, there isn’t much of a hassle – you can find a reputable AMC, and from there, you can log into their portal and start investing. Make sure you do the proper research before you can get started.