Mutual funds are considered to be one of the easiest and safest ways to invest in the stock market. However, the stock market isn’t the only place where they invest. In simple words, mutual funds are a financial vehicle that invests money from a pool of investors across a wide range of financial assets. Mutual Funds can invest in numerous financial assets like bonds, stocks, capital market instruments and associated assets. These funds are offered by an Asset Management Company (AMC) who appoints a fund manager for managing the investment portfolio. The fund manager invests according to the market movements and the personal financial planning of all investors, trying to generate maximum profitable returns for the investors.
What do you need before investing in Mutual Funds?
To invest in mutual funds, the first step is to be KYC (Know Your Customer) compliant. For doing this, you need to fill the KYC form and provide a valid ID proof, address proof and copy of PAN (Permanent Account Number) card. This should be submitted along with the initial investment to the registered mutual fund house.
After this, you can invest in mutual funds using two methods:
- Systematic Investment Plans (SIPs): SIP provides a systematic route for investment at a selected frequency like weekly, monthly or quarterly. Here you have the opportunity to change your SIP amount or even cease it halfway without attracting any penalties.
- Lump Sum Investment: The lump sum is a one-time investment that you make in one go. It’s ideal for those who own a huge amount.
Do’s and Don’ts of Mutual Funds Investment in India
If you are a beginner to mutual funds investment in India there are a few do’s and don’ts that inventors should keep in mind:
Some of the key do’s are:
- Seek help of dedicated investment advisors who are registered under SEBI like IndiaNivesh Securities Ltd.
- Ask any question that you have about investment to a professional advisor before investing.
- Evaluate the risk-return profile of your investment along with its safety and liquidity aspects
Some of the don’ts are:
- Don’t make investments that do not match with your objectives and risk tolerance
- Don’t panic if the Net Asset Value (NAV) does not move as expected. It does fluctuate for a short term but at the end the percentage loss or gain is what matters.
Mistakes to Avoid while investing Mutual Funds
- Checking the Mutual Fund Performance and Keeping Other Factors on the BacksideThe common approach of deciding which mutual fund to invest is to check the past performance of the mutual fund and then invest into it. This is typically how most of them invest into mutual funds. But is this the right way to do it?Though it is true that the return is basically why you are invested into the mutual fund in the first place. But just on the basis of the past performance of the mutual fund you cannot draw the conclusion that investing in a particular mutual fund scheme is right for you. This is because the fund manager’s performance can change with time and it could just happen that the mutual fund has performed well because the fund manager was lucky the last time. This will however not always happen.
- Do Not over Diversify Your InvestmentMany of the investor’s holds a number of mutual fund schemes in their portfolio and this is because of the broker who is advising them or because of their own nature to invest into many schemes at once. When you buy a mutual fund that is already diversified you have actually diversified your portfolio. You thus do not need to buy different mutual fund schemes to diversify further.
- Discipline in Investment Is ImportantMany investors tend to get into saving into mutual funds by looking at its past performance mutual fund mistakes and they then get caught up at the end. The investor sees the returns generated in a short period of time and that tempts them. Or else they see losses and pull out the investments. The equity investors should be prepared to stay for at least 3-5 years in order to reap the benefits of mutual fund savings. If you pull out your investment from the mutual fund because of short term gains or losses then the real purpose of investing into mutual funds is lost.
- Mutual Fund Investments Are Not Just About Investing Into EquitiesThe general notion that investors have is that mutual fund invests into equity mutual fund mistakes. Well this is not true. Mutual funds invest in equities but there are other instruments too that mutual funds invests into. Those investors who want to stay invested for a shorter time frame or do not want to take a lot of risk for them the fixed income mutual funds are a better option. There are kinds of fixed income mutual fund schemes and the investor should take an informed decision to know what is best suited for him.Thus investing into mutual funds is not just about equity investments. There are other asset classes in which mutual funds invest into.
- Do Not Ignore the Other Costs When Investing into Mutual FundsMutual fund investments attract costs and this is something that should not be ignored. When the market is in a bull run then the investor tends to ignore the costs associated with it. They think that the investment will keep giving the same return as they have given in the past.The costs that mutual funds incur cannot be avoided completely. However the investor can save some expenses that he has to bear towards the mutual fund investment.
- First and foremost understand why the advisor is selling you a particular mutual fund scheme in the first place mutual fund mistakes. Is it because he wants to make an additional commission.
- Make sure that you check various costs associated with the mutual fund scheme and compare them with such schemes
- Do Not Bother about the Noise in the MarketThe investors should take care to not pay a lot of attention to what is going around media. This noise could be caused because of anything, a stock market crash or because investors are taking out their money because of some economic event in the world or because of some other catastrophe. The market correction will cause a fall in the price of the stocks but the market will bounce back again. The market does not move in a straight line but in cycles and thus you have to take care to rise with the ups and downs that the market has to offer. When you listen to too much noise then you will fall into the trap and this can take you away from your financial goals.
Mutual Fund Investment Is All About Discipline and Patience
It is important that you be disciplined and be patient when you invest into mutual funds Mutual Funds. This will help you to achieve your long term financial goals. It is important that you invest into the market regularly and also be disciplined in your approach. Many new investors invest lump sum money in the market and then find it difficult to invest more money in the market. For them a systematic investment plan is the best way to invest in mutual funds because it lets them average out the risks. This helps them to achieve their goals.
- Mutual Funds that give dividends how to buy the best mutual funds may not always be the best fund to invest into
- It is important that you do not diversify a lot
- Your investment should match your financial goals
- Allocate your assets
- Short term returns or past returns are not indicative of what may happen in the future
- The investor should be aware of the mutual fund app of what the fund is buying with his money.
- Read the offer document and the terms and conditions associated with the mutual fund investment.
- Funds that have a low net asset value mutual fund login are not necessarily good to invest into.
Mutual funds are sure to continue being one of the best investment instruments in the years to come. However, make sure that you understand mutual funds investment and invest into them wisely and avoid the common mistakes that most do. It is important that the investment scheme matches your financial goals. Be patient and disciplined to reap the benefits out of it.
Mutual fund investments are very beneficial for those who do not have the time to track the market or do not have the required knowledge to invest into the market. But it is important that you avoid many of the mistakes mutual fund SIP that investors tend to make when they invest in mutual funds.