Mutual funds are one of the most popular investments in India. They are considered as a less risky and highly flexible mode of investment as compared to equity shares. Mutual funds can help you to achieve long-term goals and save tax. Here is all you need to know about mutual funds.
What is a mutual fund?
A mutual fund is a financial instrument that collects funds from the investors and invests money on their behalf. This amount is invested in bonds, money market instruments, stocks, and other assets. A mutual fund is managed by an asset management company and your investment is managed by a fund manager.
Types of mutual fund
You have the option to choose from the various types of mutual funds. Every fund will have a fund manager who will make investment decisions. The fund manager will make allocations in different securities in the market. You can choose from debt, growth, hybrid, and balanced funds keeping your long-term goals in mind. The risk and return criteria of all the funds vary. It is advisable that you identify your long-term goals and investment purpose when you choose a fund. Compare the returns and then make a wise decision.
How to invest in mutual funds
Investing in mutual funds is a very simple process. Once you have set your long term and short-term investment goals, you need to consider your risk appetite and then choose the fund you want to invest in. You can use the mutual fund calculator to determine the amount of money you will be able to generate if you remain invested for a particular tenure. The minimum amount of investment you can make is INR 500 and there is no limit to the maximum amount. You will now have to decide if you want to make a lump sum investment or set up a Systematic Investment Plan. In an SIP, you will have to make a regular amount of investment over the tenure of the plan. It is easier than making a lump sum investment and it brings financial discipline in your life.
The next step is to buy mutual funds independently or you could seek the assistance of a professional for the same. The professionals will be able to explain the terms and conditions of the fund and will process the transaction on your behalf. You will be required to complete the Know Your Customer [KYC] verification for a transaction to be carried out successfully. Remain invested until the end of the tenure in order to generate higher returns.
The trick is to diversify your portfolio with different types of funds so that there is a low risk along with the possibility of earning high returns. When you choose a fund, you need to consider the risk and return associated with the same. You also need to review the portfolio from time to time in order to ensure that your fund is performing well.