Mutual funds may seem complicated if you are a novice. But investing in mutual funds that suit you might be an intelligent decision.
In this article, we shall discuss what you need to know before investing in a mutual fund.
Things that you should consider before investing in mutual funds
1.Fix an investment goal
Before investing in a mutual fund, you need to have a clear goal. This will help you determine which type of fund to invest in and how much money to put into it.
Once you’ve figured out what kind of fund you need, it’s time to decide how much money you want to invest.
2.Choose suitable funds
Choosing the fund that goes with your goal is essential. It is because different funds have different objectives and invest in different instruments.
3.Understand the risk associated with different mutual funds
Based on the underlying instruments, the risk associated with different fund houses will vary from one fund to another. Funds can fall within the risk range from “low” to “very high.” Funds with higher ratings are considered more risky and volatile, while funds with lower ratings are considered safer.
4.Prefer SIP over lump-sum investment
You can start small if you are not sure you are comfortable investing a large amount of money in mutual funds. Systematic Investment Plan (SIP) is a systematic way to invest a specific amount of money at regular intervals, and you can start a SIP with just Rs. 500 per month.
SIP investment will make it easier for you to invest in mutual funds without worrying about market volatility. Plus, it would make you feel comfortable with mutual funds and make investing more money easier.
SIP comes with the benefit of the rupee cost averaging that helps you average out the cost of your investment.
5.Select the ideal investment amount
Select the ideal investment amount you will invest every month after calculating the amount you need to fulfil the goal.
This is a very important step because this is where you decide how much money you want to invest every month.
You can use a SIP calculator to calculate the amount of money that you will need to invest every month. Also, please don’t forget to consider the rate of inflation and the future value of your goal before calculating your investment amount.
6.KYC and Nomination
The KYC process is a must if you wish to invest in a mutual fund. KYC, or Know Your Customer is a government regulatory mandated for any financial transactions in India. The motive is to identify sources of funds and prevent money laundering. You need a PAN Card and valid address proof to become KYC-compliant and invest in mutual funds.
Also, nomination is an equally important step. As per new rules by the Securities and Exchange Board of India(SEBI), investors must nominate someone or opt out of the nomination process. Nomination is an easy process that ensures your investments are seamlessly passed on to your loved ones.
7.Seek professional help, if required
The process of investing in a mutual fund can be tedious as well as overwhelming. Investing in a mutual fund that suits your needs and risk tolerance is important. And it is also essential to monitor the performance of mutual funds.
In this regard, you can seek professional help and invest in mutual funds that understand your requirements and can look after your portfolio to help you fulfil your financial goals.
Conclusion
If you take your financial future seriously and are determined to succeed, investing in mutual funds can help you make your dreams a reality. So make sure to start investing in Mutual Funds as early as today!
