If you are new to the world of financial investment, you may be wondering how to buy mutual funds. This article has been prepared for people like you. We give you the lowdown on how to invest in mutual funds so you can reach your financial goals
Factors to Consider Investment Objectives– First, be clear about your financial and investment goals before you start. For instance, you should have a plan of earning Rs. x in a given number of years. Plus, you should be aware of your appetite for risk so you can invest accordingly.
Different Types of Funds– For short term needs, you can opt for liquid funds. Income funds are ideal for the medium term, while equity schemes or a combination of various funds are suitable for long term requirements. Mutual funds are available in appropriate categories and types for each need of investors. Therefore, understand your unique needs to find suitable solutions and schemes.
Risk Elements– Be sure about the risks you are willing to take to achieve your financial goals. High-risk funds deliver the best returns but you could end up losing your capital. Medium risk schemes protect the capital but this reduces the funds available for investing in growth-creating plans. Low-risk funds are the safest but you’ll have to settle for the least returns.
Asset Selection– After learning about your risk profile, you can now go about selecting appropriate asset classes. Equity or company shares and stocks are riskier but deliver the highest returns. Second, fixed-income bonds or securities are safer and give regular income. Third, are money market instruments that assure a certain amount of safety and also guarantee liquidity. The fourth asset class is real estate and commodities. Mutual funds typically invest in all four asset classes to ensure safety and increase growth potential.
Select a Good AMC– It is important to choose an AMC (Asset Management Company), bank, or fund house that has a good track record and employs experienced and qualified fund managers who are capable of handling your funds in a professional manner and keep it safe, while also providing good returns. An established AMC will offer a large portfolio of funds to select from or shift between and allows you to monitor the performance of the funds you invest in so you can stay updated.
Choosing the Appropriate Fund– This is perhaps the most time-intensive part of learning how to buy mutual funds but is also a rewarding process as you can learn about various schemes and their unique features. Narrow down the funds based on how they perform against industry benchmarks and their returns over the past 5 to 10 years to take into account historical performance. Go for funds with a consistently good track record of delivering high returns to achieve your financial goals.
Investing Your Money– The final step after selecting the mutual funds is to contact the AMC/fund house/bank to buy fund units by paying money. You can do this process online conveniently from home after fulfilling the required KYC (Know Your Customer) conditions. ConclusionNow that you are aware of the basic process of how to invest in mutual funds, do the homework suggested in this article to pick safe and high-performing mutual funds that will help you reach your investment and financial goals.