For a first time investor mutual funds seems to be a sophisticated product. But you can start your investment journey by gaining an insight on how the concept of mutual fund works.
Why mutual funds are an apt choice?
Convenience
Investing in mutual funds is a hassle free process. Less paper work is involved with monitoring procedures you are exposed to a wide range of investment and security as per your desires. In fact the art of switching between funds and even rebalancing helps you to trim down your returns as per the line of expectations.
Tax saving
Section 80 C specifies a list of direct mutual funds online and ELSS is one of them. They have gone on to become popular because of high returns and even a shorter lock in period of 3 years.
Low investment
With a small sum of Rs 500, you gain access to a diversified investment portfolio. You are also provided with the flexibility to invest a lump sum amount of money via a SIP. When you compare it to lump sum investment options SIP to lower down investment cost and cash in on the power of compounding.
Fund management in a professional manner
While investing in mutual fund, the investment basket is being managed by a professional fund manager. They are backed by a team of researchers. To do an asset location they formulate an investment strategy. They gain real insights on to the financial environment, and goes on to adjust your mutual fund portfolio accordingly. They possess investment related skills which a novice ends up lacking.
Tips for a first time investor of mutual funds
Have an investment goal
Clearly outline your financial goal in terms of budget, tenure and objective will go a long way. This is going to enable you to figure out the amount of money you need to set aside for mutual fund and clearly understand your risk appetite. A point to remember is investment would always work better with a purpose.
Choice of the right type of fund
A mere reading would not suffice in the choice among the various types of mutual funds. Financial experts are of the view that a balanced approach via an approach of debt instruments would be beneficial for a first time investor and provide you with higher returns.
Then you need to shortlist and stick to a single fund. With a plethora of funds in the market over the last few years you need to choose one that has performed remarkably well in the last 5 years. Other factors like expense ratio, performance of a fund manager are important pointers in the choice of a mutual fund.
Diversify
Do not stick to a single mutual fund and it is better if you diversify. A suggestion would be to choose at least 3 types of mutual funds. This covers up the risks, as if one fund under performs it is expected that the other one makes up for the same. In hindsight this is not expected to bring down your entire portfolio.
