Introduction • Investors are always on the lookout for lucrative schemes which have good potential to turn their income into profits. If you are also such a person, then you must have come across mutual funds. Mutual funds have proved to be one of the most effective ways to make money in the investment market in India. • However, since the ambit of mutual funds is huge, there are a few things that you must keep in mind before you think about investing. Not only are there rules to follow but also certain formalities attached to it. If you wish to know more about it, then keep reading:
For any MF investment, there are a few prerequisites. For instance, you must have your own bank account and submit all the KYC documents through a mutual fund house or the e-KYC facility before you can proceed any further. Since this helps in verifying your identity, you must fulfill this step.
Within mutual funds, different policies and pool funds have varying amounts of risk. So, in order to place your deposit, you should first figure out your risk appetite. Always remember to ask yourself how much money you are prepare to lose in a trade as this will help you evaluate your risk profile and determine when to exit a failing trade.
Out of an overwhelming 2500 funds, it is important that you only select the ones that have the potential to reach your financial objective. Thus, allocation of money in different mutual fund asset classes is crucial. While equity mutual funds are riskier than fixed-income securities, they are also capable of generating more wealth in the long-run.
Once you settle on either equity shares or debt-funds, you have to follow it up with selecting a specific fund within that category. At this point, you must take care to avoid taking multiple advice and suggestions from people, especially if you are a first-time investor. A plan will not necessarily perform well for you just because it has worked out for other investors too. So, it is best to just stick to the advice of a financial advisor and reach out for plans that have produced good returns consistently.
Following fund selection, you will arrive at the stage of purchasing. Here, you can either choose to buy the funds from fund houses by turning up at their offices or submit an application online. Needless to say, the latter option is much more convenient and hassle-free. However, if you wish to conduct a trade through an intermediary like a brokerage, bank or financial advisor, you can do so too, if you feel that they are the easier choice.
The tenure of the mutual fund is a fundamental aspect for all investors. You can invest in a lump sum scheme or a systematic investment plan. When it comes to lump sum, you have to deposit the entire amount at once but with an SIP, you can invest in small fixed amounts on a regular basis. In reality, lump sum investments are much better suited to debt funds than equity shares. Systematic investment plans, on the other hand, work marvels for balanced or equity funds.
In this context, it is important to mention that your investments will not prosper if you do not review and analyze them regularly. You must keep a track of all your investments and check if it is actually growing or not. Given the ease of online tools nowadays, you can easily monitor and alter your portfolio online in order to make it more comprehensive and effective. This will ultimately help you reach your financial goals faster.
Lastly, every successful investor should know when to exit a trade. Thus, constructing an exit strategy that will not only help you terminate a trade but also minimize on the loss of a failing trade, is of utmost importance. If you notice a plan underperforming consistently, then it is time to sell your fund. Alternatively, if you have already reached your goal, make sure you withdraw your money timely and move it onto a fixed account or fund before the market suddenly becomes unfavorable.
All things considered, mutual funds are comparatively less complex than other investment options available in the financial market nowadays. However, you need to be dedicated and patient throughout the whole process. Once you get a few tricks up your sleeve after due practicing, you can effectively use this tool of investment to accomplish your long-term financial goals.