Before discussing the different ways one can successfully invest in a mutual fund, it is mandatory to know and understand what mutual funds are. A pool of money accumulated from a large number of investors, professionally managed and regulated by SEBI, to yield higher returns are called mutual funds. Being regulated by SEBI, the investment is quite safe and secure.
It is also the best possible way to escalate your wealth if proceeded in the right matter. Here are a few tips that may come in handy for beginners who are willing to step into the world of mutual funds confidently:
Before you step into the whole process of investing and figuring the type of funds you wish to invest in, chalk out a plan for yourself for a better understanding of what you are looking for.
Clarity about the fund you are investing in
There are a plethora of schemes that you may have to choose. Thus, a proper understanding and sound knowledge about the type of mutual fund that you are investing in is fundamental. Get a clear idea of it before you take a step ahead.
It is essential to have a clear picture of the past performance of the fund in which you are investing. Sensex can be a useful parameter to measure the fluctuations. It is also essential to get an idea about the returns of the fund.
Choosing the right index fund
A common mistake that mutual fund investors make is that they choose a low-cost index fund instead of a high-cost fund. You don’t want a negative effect on your return. If you are looking for a smarter approach, go for the high-cost actively managed fund.
The credibility of the team
Experience plays a significant role everywhere. The more the experience of the managers you are handing your money over to, more the reliance and dependability. So, do take note of the tenure of the members of the management team.
Avoid common mistakes
Often winning funds sell and the losing ones are held. Proper and sound judgment is vital when handling mutual funds. It is essential to be sensible about every step you take in this process.
Stay invested for a reasonable amount of time
If you are investing in an equity fund, make sure you do so for at least five years. It will ensure recovery from losses and also escalate your returns. However, a shorter time is advisable for money funds.
Fund robbers, such as inflation, income tax, and interest rates, need to be kept at bay. Choose a mutual fund that makes sure to guard you against fund robbers. The funds that protect you from these are called balanced funds. Funds With a low exit load are preferable.
These were a few points to get you started with investing in mutual funds with full confidence.