“Mutual funds' investments are subject to market risks. Please read the offer document carefully before investing”, is the well-known disclaimer we come across for all mutual funds advertisements. Depending on the type of fund, the risk factor also varies. The investment which is vulnerable to wild fluctuations is considered to be highly risky. For example - Equity funds are considered to be more unpredictable especially during short to medium term. Debt funds also do carry risk but are considered to be generally safer than equity funds.
When planning to invest in mutual funds, we need to be clear on the investment objective. If you are looking to grow your money then you need to keep your investment for a long term in growth funds (equity funds) which are an ideal choice for you. If you want stable income from your investment on a periodical basis, then it is best to invest in income funds which are also known as debts funds. If your objective is to keep your money only for the short-term and want to have the freedom of withdrawing your investment anytime, then liquid funds are the best choice for you. In liquid funds, you can keep your investment for as short time as a day.
One of the best things about mutual funds is that money gets invested in various business sectors like banking, power, rail, auto, marine etc. This way the risk of investment also gets diversified and helps mutual funds to grow. This is one of the reasons mutual funds have become successful investment instruments in the financial world due to its feature of diversifying its investment in a smart manner.
Mutual funds can be compared online for its features, past fund performance, current value (NAV). It is also advised to check the rating and review of the particular mutual fund to gain more understanding of its performance in comparison to other funds.
As discussed above, mutual funds need to be invested with a specific financial goal in mind along with risk appetite. There are different types of funds in which you can invest your money, they are positioned below as per the risk involved in them: Balanced funds – Balanced funds are considered to be least risky as almost 35% of the investment is in debt funds. It is advised that beginners to mutual fund should always go for investment in balanced fund.
Large Cap funds – Under a Large-cap fund, monies get invested in large/ blue chip companies which are well established and don't have wild swings of market fluctuations.
Medium Cap funds – Under a Medium cap fund, monies get invested in mid-size companies and are considered to be riskier than large-cap funds. Although risky, they also have the potential to get you lucrative returns in the same period than the large cap or balanced funds.
Small cap funds – Under a Small-cap fund monies get invested in stocks of start-ups or the companies in the early stage of development. These are considered to be most risky of all and also volatile as they can give you huge returns or can even break your investment.
It is important to diversify your investment in mutual funds. Don’t put all your eggs in one basket. Diversify your investment in different mutual fund schemes, so if one tanks, the other can have your investment afloat or even help grow your overall investment.
Ideally, for growth in mutual funds, you need to give your investment a good time period. Growth or equity funds perform best in long term and it is advisable to keep your investment for the long term to see the fruitful results of your mutual fund investment.
All mutual fund houses have their own website which provides hassle free and secure view and updated details of your mutual fund investment. You will get the following details: NAV (Net Asset Value), price change, close price, net assets and yield, year to date return etc. With just a click of a button, you can access all these information online to quench your mutual fund information thirst.
You can follow up on your mutual fund investment by giving the folio number of your particular mutual fund or tracking the progress of your investment on the website of the mutual fund house.
You should monitor the performance of your mutual fund investment on a periodic basis for its performance. This will help you to know if your investment is doing well and if you should continue to keep your money invested or to take it out and invest in some other mutual fund.
Subscribe to newsletters for mutual funds which are available for subscription online. Usually, there is no fee to subscribe to the newsletter and are totally free of cost. You can subscribe online for newsletters from different sources. Newsletters will not only keep you updated of the health of the financial markets but will also help you to gain knowledge about the various types of mutual funds and their performance.
Newspapers especially financial newspapers are a great source to get daily data of the mutual funds market. You can get to know about the mutual fund performance by reading the mutual fund table in the newspaper.
What are the returns that you can expect from mutual funds investment?
Mutual funds returns are dependent on the type of funds you are investing. For example – debt funds will offer limited returns, balanced funds will offer stable returns and if you are looking for high returns you should go for equity funds.
How to invest in mutual funds monthly?
You can invest in mutual funds with SIP (Systematic Investment Plan). You can also increase your investment along the way. There are fund houses in which you can start a SIP for as low as INR 100 a month. SIP scheme is similar to bank recurring deposit scheme and the investment amount of monthly SIP can be increased gradually every year as and when income increases or salary gets hiked annually.
How to invest in mutual funds for beginners?
For beginners, it is best to take baby steps, which is to start with SIP of INR 100 or INR 500 monthly. Determine your objective of investment i.e growth, income or liquidity and accordingly invest in the type of mutual fund. Track the progress of your mutual fund regularly and get used to the working of the mutual fund market. You can slowly grow your capital investment once you are more confident and clear of your mutual fund investment knowledge and goals.
How to invest in direct plans of mutual funds online?
Direct investments are those where you buy directly from the mutual fund company. You can simply log in to the mutual fund house website and purchase the mutual funds from there. As there is no agent or broker involved, direct mutual funds are cheaper in comparison to regular mutual funds.
Should first-time mutual fund investors go for regular or direct plan?
The difference between regular and direct plans of mutual funds is that the expense ratio of the former is higher than the latter. Under regular plans, an Asset Management Company involves the services of agents or brokers for distribution of mutual fund products. The commission that gets paid to the distributor will get added to the investor’s expense ratio. In case of direct plans, an investor directly parks money in a mutual fund scheme, which means the company does not have to bear extra cost for distribution.
Those looking for the best mutual fund investment option, should consider choosing the direct plan route. Given that direct mutual funds are expected to fetch higher returns due to their lower expense ratio, they are a better-suited option for first-time or experienced mutual fund investors.
How can I invest in mutual funds to earn a monthly income of Rs. 5,000?
For enjoying a monthly income of Rs. 5,000, an investor has to invest an approximate minimum of Rs. 7.5 lakhs into mutual funds schemes with dividend payout option, and the combination of the investment must be around 30% equity and 70% debt.
