Mutual funds are great investment instruments for people who wish to park their surplus money and make it grow. Investing in mutual funds does not require a deep understanding of the concept, having some basic knowledge is more than enough to start investing in mutual funds.
How do mutual funds work?
Mutual funds are investment instruments which club the investments from various investors and invests them in the stock market under a given scheme. These funds are managed by a special body called Asset Management Company (AMC).
The total pooled money is invested in different types of securities like debt funds, equity funds, bonds, etc. the funds are managed by an expert called Fund Manager as appointed by the AMC. A fund manager is responsible for managing the funds in accordance with the market corrections and creates wealth for the investors. An annual fee termed as Expense Ratio is charged from the investors against the services, they avail which is mainly managing their portfolio. The returns are generally in the form of capital appreciation or dividends. There is an option with the investors to either earn the gains as regular income or they can reinvest the returns back to the investment amount.
Why mutual funds?
There are several reasons that support investments in mutual funds. They are easy, accessible and much more. Here are a few of them;
1. Ease of use
Mutual fund investing has become very convenient over the course of time. There is no need for paper-work or timing the market. Everything is online and super-fast. There are a lot of facilities with mutual fund investing like portfolio management, plan switch, etc. it takes just a few minutes to get going with your first investment and many more to come.
2. Start small
This is a great advantage when it comes to investing with mutual funds. You can start small, as low as Rs. 500 and increase the amount gradually as per convenience. SIP or systematic investment plan is a way of investing which allows investors to invest on a regular basis with a small amount of investment. Contradictory to lump sum investment, SIP allows investors to make a small contribution towards investment portfolio and create wealth. Read more about SIPs at https://www.piggy.co.in/blog/what-is-a-sip/
3. Tax- saving
ELSS is Equity Linked Savings Schemes is an option offered by mutual funds which have benefits under the section 80C which allows investors to save taxes on investment up to Rs. 1,50,000. It requires a lock-in period of a minimum of three years.
4. Professional touch
The mutual funds are managed by experts called fund managers. These fund managers are supported by a team of financial researchers who maintain up-to-date information about market trends. The fund managers based on this data and his own experience manage your funds and makes the decision regarding selling or purchasing funds. The knowledge and skill set of fund managers goes beyond retail investors.
Important things to consider while you make your first investment
1. Set your investment goal
It is very important to set a goal. Goal setting provides with a direction to move in and the ultimate purpose of investing. The goal can be set in terms of budget, objective or tenure or all of them.
2. Choosing the fund type
Mutual funds come in a lot of variants. It is very important to decide on a suitable fund category. A balanced portfolio is the most advisable kind for beginners as they are a mix of debt and equity funds which would give a flavor of safe, low-risk investments in debt funds and a flavor or risky but higher returns in equity investments. Read https://www.piggy.co.in/blog/how-to-select-the-right-mutual-funds/ for more information.
It is a tedious task. With thousands of options, one has to choose the one best fund which has been performing well for the past 5 years minimum and is backed by a credible fund manager. You can try our premium service if you need expert help at https://www.piggy.co.in/premier/ .
Diversification is the essence of mutual fund investing. Spreading your funds across various categories gives you a mix flavor which also cushions you from obvious market risks.
5. SIP is on stop destination
Rather than going for lump sum investment, go for SIPs which allow investing at regular intervals in small amounts. It allows diversification across funds, tenure, and markets as well. The two important factors backing-up SIP are rupee cost averaging and the power of compounding. These two fundamentals work together to provide with a cushion and create wealth for the investors.
6. KYC Update
Keeping the KYC updates has become a mandate these days for any financial transaction you make. With the central KYC system being implemented, it has simplified things a lot. Investors are required to update their KYC only once which acts centrally across all financial transactions and investments.
7. Get your Net Banking Activated
When you opt for SIP, your regular investment installments are debited from your account automatically. But this requires an active net banking account. This payment can also be done through the help of debit/ credit cards but that would require your intervention.
8. Take expert advice
It is imperative that selecting from a large number of options available can be tiring both mentally and physically. If you happen to shortlist a fund, you will then need to look after its performance for a while to invest which in itself is a wholesome thing to do. In such a case, take expert advice. piggy can help you in doing so.
How to invest in mutual funds?
Investing in mutual funds can never get easier. With Piggy, it is fast, simple and paperless. Just follow these three simple steps and you are done!
Step 1: login to your piggy account or sign up
Step 2: Fill in your personal details and get your e-KYC done
Step 3: start investing in your choicest funds from a wide variety and with expert advice at your convenience.
For more information on mutual funds and related topics go through Piggy’s blog and search for desired articles.
Start Investing, Smart Investing!