All About Investing In Mutual Funds
Are you planning to save money for long-term goals? Mutual Funds are the best investment types all over the world. Understanding the working of mutual funds is a tricky process. Further, it is a kind of collective investment that helps to pool money through various market instruments. There are various investors in the markets as well. They invest in various securities like bonds, gold, and all other similar assets.
The mutual funds are managed by professional fund managers. The fund manager uses the pool for investing in stocks, gold, etc. to get visible returns. Additionally, there are four main types of mutual funds.
TYPES OF MUTUAL FUNDS
1. EQUITY FUNDS
These are the funds that are invested only in equity instruments. The equity funds take place in the share of companies.
2. DEBT FUNDS
These are the funds invested in all the fixed income securities. These include bonds and Government securities.
3. MONEY MARKET FUNDS
These funds are invested in short-term money market instruments like treasury bills, commercial papers, etc.
4. HYBRID FUNDS
Hybrid funds are those which are divided between equity and debt instruments. Furthermore, these funds are created to give a fine balance between both types of instruments.
BEST WAYS TO INVEST IN MUTUAL FUNDS
1. SYSTEMATIC INVESTMENT PLAN
It is a fixed amount invested in mutual funds. It is a kind of investment route where you can invest a fixed amount monthly. There are mutual fund schemes where you pay at regular intervals. Sometimes, it can be monthly, yearly, or quarterly. It is best for people who want to save a small amount to the mutual fund at frequent intervals. There is no need for a lump sum investment.
The installment can be anything as little as Rs. 500. The process is like recurring deposits. There is an auto debit facility for the mutual fund scheme. You can instruct the bank to cut the amount as per the instructions you have given.
2. LUMP-SUM INVESTMENTS
It is investing a large amount at a single go. In this type of arrangement, you make a single payment towards mutual funds units. Besides, if you have high disposable amounts in your hand, this is the right choice for you. These are of high-risk tolerance if you are making lump sum investments.
It is a one-time payment of Rs. 1,00,000. Many prefer giving mutual fund investments in a SIP-based way.
WHAT ARE THE BENEFITS OF INVESTING IN MUTUAL FUNDS?
1. Helps in easy liquidity
Mutual funds are highly liquid, and you can get money at easy intervals. You just need to make a withdrawal request and you will get the money. It is like keeping money at a bank. In Mutual funds, the interest rates are higher which helps the money to grow better.
2. The Mutual fund schemes are regulated
Mutual funds are very well regulated by SEBI, making it hard for any kind of fraud. The process is very transparent helping in the protection of investors.
3. Professional help using low charges
The accounts are well maintained by the professionals. So, the users don’t need to have complete knowledge of the markets. The professionals study the markets and help the investors to get the right knowledge. The investors are picked from the Asset Management Companies. They have advanced knowledge of the right kind of market to invest in.
DIRECT OR REGULAR MUTUAL FUNDS: WHICH ONE SHOULD YOU INVEST IN?
Most people think that direct plans are the best since it helps in saving 1% to get higher returns in the future. But that is always not the case. In direct plans, you get higher interests by about 0.5% in equity instruments and 0.2% in debt instruments. Investors must do market research on their own to know which fund is better.
In the case of regular funds, there is a financial advisor in between. The advisors help to understand the investments properly. They help in giving you an efficient experience in earning better returns. The difference between both funds is about 4 to 5% in total. In the case of regular plans, there is a brokerage commission involved.
If you invest in the direct plan, you should have greater knowledge of the mutual fund market. But if you are someone who wants your money to be expanded with professional help, regular plans are the best.
PROCESS OF INVESTING IN MUTUAL FUNDS
1. Getting all the KYC documents ready
It is not possible to invest in Mutual Funds if you have not yet done the KYC process. It is a Customer Identification process. It is an important part while opening an account with any financial entity.
2. Doing Risk Profile Assessing
The Risk Profile helps you in knowing the risk and returns associated with a particular fund. It is a crucial step before investing in money. If you don’t do the assessment, you can be exposed to more risk than ever.
3. Having a Bank account
There should be active internet banking facilities in your bank account. You can also pay using UPI IDs. By approving the ECS mandate, you can invest money easily on a quarterly or monthly basis.
4. Taking Expert Advice
Managing the mutual funds by yourself and assessing the market is quite tough. When you have expert advice, you will surely get excellent returns in the end. Also, there will be a stable investment portfolio.
Mutual Funds are the best way to get financial goals satisfied within a period. Before investing, take time to read the market properly. There are numerous fund houses to make the investment process hassle-free. Know all your goals and invest accordingly.