A detailed guide to invest in mutual funds

A detailed guide to invest in mutual funds
April 26 12:43 2018 Print This Article

Mutual funds are the most feasible investment instruments for everyone. Whether you are from a working class or a businessman; you can start investing in mutual funds. The low risks, a small investment amount, impressive returns, and simplified procedures are some of the positive aspects of mutual funds. And if you want to invest in stocks but don’t have enough knowledge, you can bestow this responsibility on fund managers who manage mutual funds.

Since this is your first time, you should be aware of some facts and procedures. This detailed guide on investing in mutual funds will make you familiar with the mutual funds world.

KYC Norms

To invest in mutual funds, you need to go through Know Your Customer (KYC) norms. According to the Government of India, these are mandatory for the mutual fund investment. You can either opt for independent agents who will assist you with KYC compliance or you can directly register yourself through a mutual fund house.

KYC compliance requires you to submit documents like address proof, identity proof, photograph & signature, PAN card, etc. You can either submit them in physical format or you can upload digital copies.

Types of Funds

There are a variety of funds in the mutual fund segment but we will consider two most prominent ones:

  • Equity Funds – These funds are invested in shares of companies. You can expect high returns and moderate-to-highrisk profile in this segment. If you are planning to invest for a longer term, such as five years or more, we recommend opting for equity mutual funds. Moreover, in the long term, the risks are drastically reduced. These funds invest 65% of your money in equities.
  • Debt Funds – These funds deal with fixed income investment that will furnish steady but low returns. If you plan to invest for a short term, you can invest in debt funds. If you are highly receptive to risks, debt funds will ensure minimum risks associated with your investments.

You can also opt for balanced funds that comprise of both equities and debt instruments. Before investing, check out the CRISIL ratings to compare mutual funds. Further, check out the past performance as well. Moving forward, you should know about direct and regular funds.

  • Direct Funds – When you invest money yourself without the assistance of an agent, you are investing in direct funds. The expenses associated with direct plans range between 0.75% and 1%. Thus, you will earn more profit by incurring fewer expenses.
  • Regular Funds – If you don’t want to delve into complexities, you can simply opt for regular funds wherein an agent will take care of your fund. Gradually, when you gain enough insights, you can switch to direct funds.

Investing in Mutual Funds

While investing in mutual funds, you can either opt for systematic investment plans (SIPs) or lump sum investment. Out of these two, SIPs will generate higher returns in the long term. Thus, you should consider opting for SIPs. But if you want to opt for an easier way, go for a lump sum investment.

Regarding payment, you can either pay cheques at the mutual fund branch in your city or you can go ahead with online payments. We are biased towards latter option as it is more convenient.

After you have invested your hard earned money, keep monitoring fund performance. If it is not performing as per expectation, you can sell it off and invest the amount in another mutual fund. However, don’t judge a mutual fund on the basis of a short-term performance. Mutual funds always perform best in the long term.

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Chan Francesca
Chan Francesca

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