Beginners Guide to Mutual Funds

by Nirav Singhaniya Financial Advisor

Mutual funds are considered to be one of the easiest and safest ways to invest in the stock market. However, stock market isn’t the only place where they invest. In simple words, mutual funds are a financial vehicle that invest 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 common goal of all the investors, trying to generate maximum profitable returns for the investors.

What are the advantages of Mutual Funds Investment in India?

There are several advantages of choosing mutual funds such as:

Risk Reduction: With mutual fund investment, you can diversify your portfolio. On an average, a fund manager invests in 50 to 100 securities based on the focus, thus increasing the chances of returns and decreasing risks.

Liquidity: A major benefit of mutual funds is that unlike the traditional methods of investment, mutual funds offer low or zero lock-in period depending on the type of funds. This means that you can redeem your funds whenever required.

Professional Portfolio Management: When investing in mutual funds, you may have to pay a nominal management fee which is a part of the expense ratio. This is used for hiring a certified portfolio manager who will buy and sell shares, bonds and stocks. The price that you pay is relatively small as compared to the profits that you can gain through the professional portfolio management services.

Maximizing returns: From tax deduction to a low initial upfront payment, mutual funds investment in India help you maximize the true potential of your capital. In addition to this, the facility of portfolio rebalancing and switching between multiple funds ensures the returns are in line with the expectations.

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 Plan (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 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.

You can invest in mutual funds online with the help of a broker like IndiaNivesh Securities Ltd. regulated by Securities and Exchange Board of India. Such platforms support eKYC, which can be done instantly!