Mutual funds for Beginners

Each of us looks for ways to secure our future and improve our standard of living. Meaningful investments are the best ways to secure our future and become financially independent. You can make your life secure and fulfill your dreams with the returns received from your investments. When it comes to investment opportunities, you can find a plethora of options, and it may be a challenge to choose the right one from them. Investing in a mutual fund is a meaningful way to build wealth and make your dreams a reality. This article gives an insight into mutual funds for beginners and the benefit of choosing it as an investment option to create wealth and become independent financially.

Why mutual fund a good option for investors

Investing in a mutual fund can be suitable for all type of investors, be it a beginner, or a seasoned investor. Mutual funds have many qualities and features and knowing them to help a novice investor to invest properly and make good returns. The advantages of investing in mutual funds are:

• Easy to invest
• Professional management
• Diversified investment
• Relatively low investment cost
• Option to buy different types of mutual funds
• Versatile enough for all types of investors
• Easy to liquidate
• Capital appreciation
• Power of compounding
• Asset allocation facility
• Capacity to create immense wealth
• Tax Benefit

Prerequisites for investing in mutual funds

There are a few prerequisites required to invest in mutual funds. A bank account with internet banking and KYC (Know-Your-Customer) Complaint is necessary to invest in mutual funds. KYC helps to verify the identity of the investor you can apply for it directly through a mutual fund house or with a Registrar and Transfer agent. Other one-time prerequisites for investing in mutual fund include permanent account number, Aadhaar number, proof identity, recent passport-sized photographs, and self-attested copies of your proof of address.

How to choose the right fund

Mutual funds are certainly a good investment option for all, but the task of choosing the right funds from so many schemes can be a bit challenging. Getting a deep idea about different types of mutual funds helps you to choose the right one based on your financial objectives. Take a look at the decision points that help you to make the right investment choice without any difficulty.

1. Debt or equity

   A first-time investor should know the difference between debt and equity funds as it will help him to take the right decision for asset allocation. Since both these funds fulfill different investment needs, knowing the difference between the two options helps you to determine how much you should invest in equity shares and how much in fixed income securities. You can expect lower but steadier returns by investing in debt mutual funds, whereas equity shares offer higher returns with high risks and ideal for long-term investment.

   Aggressive hybrid funds are an ideal choice for first-time investors who prefer to invest in equity. You can invest nearly 65 to 80% on equity and the remaining part in debt. Investors who look for retirement or other long-term plans can invest in balanced and equity funds to reap better returns whereas debt funds are suitable for fulfilling short-term financial goals like buying a car.

2. Pick the specific funds

   After decided to allocate your assets between equity and debt, the next step for a first-time investor is to choose the specific fund or funds within the equity or debt categories. Instead of picking up a mutual fund randomly or depend on the advice of a friend or relative, you can choose funds that consistently perform over a long period. Always try to pick a mutual fund with good ratings by top mutual fund companies. You can also approach a mutual fund advisor to pick the right funds that meet your financial objectives. He evaluates your risk-taking capacity and analyzes different investment options to choose the best funds that suitable for your short-term and long-term financial needs.

3. Number of funds required

   As a novice mutual fund investor, you may be confused about the number of funds to pick to make your portfolio.  Your portfolio may get diversified across numerous stocks even if you invest your money in a single fund. So, you can provide sufficient diversification to your portfolio by picking two or three funds from different fund houses.

4. Choose either a direct plan or regular plan

   Today, mutual funds offer both direct and regular plans, which make a novice investor confused to make the best one. Both are same, and the only difference is that an investor does not need to pay a commission or distributor fee in the case of the direct plan. Even if it has the advantage of lower annual expenses, you need to do everything, including tracking and rebalancing the funds and switching them. Since a first-time investor may find such tasks daunting, it is wise for him to invest in mutual funds through regular plans.

5. Choose from growth or dividend option

   Investors who do not require the money as dividends can choose the growth option so that the returns of their fund make the best of compounding. By choosing the growth option, you can enjoy the magic of compounding and can generate wealth.

When to sell your funds

Investors make money by buying good stocks and hold them for the long-term to make better returns. They need to be realistic for planning their financial goals with mutual fund schemes. Most investors sell their funds based on the direction of the mutual fund market, the similar way they buy their stocks. As a first-time investor, in first place you should never consider selling your mutual fund units and if you have to than only during the following circumstances:

• During emergency requirement when you are not left with any other options.
• When you are re balancing your portfolio
• When your fund is Underperforming and there is no hope of improvement in future performance of fund.
• Change in mutual fund policy which is going to effect the theme of a fund you hold.
• if there is any other better alternative
• or when you reach your financial goals, for which you invested in mutyal fund.

Mutual funds are an excellent option for investing to generate wealth as it does not need a great deal of expertise to understand the concept. Even new investors can choose this option to invest their hard-earned money to meet their financial goals. As a first-time investor, it is wise to analyze a few things before investing like financial stability and investment objectives by keeping short, medium, and long-term goals in mind.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh