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A lot of investors around the globe prefer mutual fund investments for wealth creation. This is because of the immense scope and ability of these funds. These funds range over a wide spectrum of variety. Based on your requirements, you can select funds for capital preservation, steady income or high returns in the future. And if you are a novice in investments, this is perhaps the best way to get introduced to financial markets.

Here is how you can invest in mutual funds:

1) Be KYC compliant

It is very easy to buy mutual funds. In fact, you can purchase funds online. But in order to do it properly, you need to have all the necessary documents in order. Ensure you are KYC compliant. If not, you can fill out the KYC individual form to become compliant. Here is a list of other documents you need to provide:
a) The duly-filled application form
b) Identity proof (PAN card, passport, voter’s ID or Aadhaar Card are applicable)
c) Proof of address (passport, driving licence, ration card, insurance copy)
d) Cheque for the investment amount (SIP or lump sum)
e) Third-party declaration form (in case of minors)


2) Identify your investment goals


It is important to have clear-cut investment goals. There are many different types of mutual funds available in the market and each fund has a specific goal. For example, if you wish to avail tax benefits, it is suitable to invest in Equity Linked Saving Schemes (ELSS). If your goal is to earn steady returns, it is best to invest in debt mutual funds.


3) Assess your risk profile

Every investor has a different risk appetite. For example, equity funds invest predominantly in the stock market. These funds have the potential to offer higher returns. But they also come with higher risk when compared to debt funds. Similarly, sectoral funds invest in a specific sector only. So, if a fund has invested in the IT sector, you could be exposed to high risk if the sector crashes. Investing in these kinds of funds without knowing your risk tolerance level can result in losses.

4) Select the right funds

Once you know your list of investment goals and your risk tolerance level, investing becomes easier. There are different kinds of mutual funds. This includes:


5) Maintain an age appropriate portfolio

As you grow older, your goals and ambitions change. Similarly, your mutual fund portfolio must change too. At the beginning, it may be better to invest more in equity funds to earn higher returns. But as you near your retirement age, it is better to shift your investments to safer funds like debt funds or balanced funds. This way, you can preserve the capital during the sunset years of your life. You don’t want to lose a major chunk of your investment money at such as stage in life.


6) Invest through SIPs

One of the best features of mutual funds is the Systematic Investment Plan (SIP). As an investor, you don’t need to bother about rising and falling markets as long as you continue to invest regularly through SIPs. All you need to do is invest a specific sum of money on a regular basis. This can be monthly, quarterly or even annually.

Based on your investment budget and goals, you can decide how much you want to invest. There are many funds that allow you to start a SIP with Rs 500. Over time, you can increase the amount you invest so that you can earn higher returns.


Conclusion


With a strategic investment plan, you can invest steadily in mutual funds and earn an envious warchest to meet your future goals like buying a home or creating a retirement fund. And the best part is you can do it very comfortably.

 

 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

All about mutual funds

A mutual fund is a pool of money created by combining the investments of several individuals for investing in specific asset classes mentioned in the fund’s prospectus. These asset classes can be stocks, bonds, money market instruments, and commodities. Mutual funds invest in one or a combination of these, depending on their mandate.

Mutual funds help investors make the most of their investments, even if they lack the time or expertise to invest on their own. They are managed by trained and experienced investment professionals. You can trust them to maximise your returns and minimise your risk.

Here is a detailed mutual funds investment guide that can enable you to know how to invest in mutual funds.


How to invest in mutual funds?


Mutual fund investments are in the form of nominally priced ‘units’. Each unit entitles you to a share in the fund’s returns. You can buy any number of units, based on the amount you want to invest. You can make these investments through a broker or directly through the mutual fund company (known as Asset Management Company or AMC). Broker-facilitated plans are called regular or Indirect plans and plans where you invest directly through the AMC are called direct plans. There are numerous types of mutual funds. These include:


Types of mutual funds

1. Equity (growth) – They invest at least 65% of their corpus in equity. “Growth” means that these funds do not pay a periodic dividend. They buy more shares with the dividend they receive from existing shares.
2. Debt (income) – They invest at least 65% of their corpus in corporate bonds, government bonds, and money market instruments. “Income” means that these funds pay a periodic dividend to investors. This comes from the dividends they receive from the securities they have invested in.
3. Gilt – They only invest in government securities and are therefore the safest funds to invest in.
4. Money market funds – They only Invest in short-term debt instruments like Treasury Bills (t-bills) and Certificates of Deposit (CDs). They are ideal if you want to invest some idle cash for a few months, without much risk.
5. Balanced – They strike a balance between risk and returns by distributing their corpus between equity and debt. The percentage allocation to equity and debt varies between funds, and can be found in their prospectuses.


Other common mutual fund categories include Tax-Saving funds or Equity Linked Saving Schemes (ELSS), Index funds, and Sector-specific funds. ELSS are 100% tax exempt under section 80C of the Income Tax Act, 1961. Index and Sector-specific funds invest in shares from a particular index (such as S&P CNX NIFTY or BSE Sensex) or a specific sector (such as IT, Banking, and Metals) respectively.

Open- vs close-ended funds

Mutual funds can also be categorized based on the freedom of entry and exit. Open-Ended funds allow you to enter and exit (i.e. buy and sell units) at any time during the fund’s life.
Close-Ended funds only let you redeem your investment at the end of the scheme period. However, these funds are listed on stock exchanges, just like shares. You can buy and sell their units on the exchange, as you like. Today, most mutual funds are open-ended.

Net Asset Value or NAV

NAV is the total value of securities held by a mutual fund, net of expenses. AMCs calculate this amount at the end of trading, each business day. They divide this by the number of units held by all investors and report it as NAV per unit. Investors can buy and sell units of an open-ended fund at the most recent NAV.

Investor protection

To ensure that protection of investors’ interests, all mutual funds are regulated by the Securities and Exchange Board of India (SEBI) and governed by a Board of Directors that represents the shareholders. In addition, mutual funds are required to issue two documents that discuss the fund's characteristics, investment strategy, and performance. These are:

1. Prospectus – a legal document that discusses the funds features and investment strategy. You should go through this before investing in the fund.
2. Shareholder reports – a report on the fund’s performance that is normally released by the fund house every quarter.


In conclusion

Mutual funds is a great investment option because it combines the benefits of professional advice and personal investing. Knowing how to invest in mutual funds online can be helpful as an experienced fund manager manages your money, but you can pick the asset class, sector, investment term etc. And you get all this at a nominal cost and a small minimum investment threshold. With so much to offer, mutual funds is definitely a must for your portfolio. Knowing how much to invest in mutual funds each month or at one go, can go a long way in ensuring a robust investment portfolio.

 

Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.