It is very important to invest your money. One of the most convincing reasons is the likeliness of enjoying a financially secured life. You can generate wealth in 2 ways – by working truly hard, and/or making sure that your money works for you. While most people often go forward with the former, not everyone realises the benefits of adopting the later approach. One such way of ensuring that your assets work for you is achieved when one invests in mutual funds.
Investing in mutual funds is usually perceived as one of the best ways to create wealth in the long run. Though anyone can invest in mutual funds today, there are a few important things a beginner must pay heed to before they start their investment journey in mutual funds. Let’s understand these pointers:
1. Why should you invest in mutual funds?
There are many benefits of mutual fund investments. Mutual funds have the potential to provide significant returns as opposed to other traditional modes of investments. Mutual funds are managed by professional fund managers who take all the investment decisions on your behalf. Thus, anyone can easily invest in mutual funds. What’s more, mutual funds also help to diversify your portfolio by investing in different types of mutual funds.
2. SIP or lumpsum?
Lumpsum is a one-time investment wherein you invest the entire investment amount in one go. If you have a substantial disposable sum of money, then you may consider investing in mutual funds through a lump sum investment. However, one should note that this may involve timing the markets and thus only an investor with high risk profile must do that. However, if you have regular flow of money in your account, it is advised to invest in a systematic manner. SIP, also known as Systematic Investment Plan allows investors to invest in mutual funds regularly over a period of time. SIP investments also instil the much-required financial discipline among investors.
3. Selecting the right mutual fund for your portfolio
There are different types of mutual funds available to an investor. When choosing the right mutual fund investments for your portfolio, you must consider risk-adjusted returns rather than focusing on maximum returns, You should also consider other factors such as the fund’s performance against its underlying benchmark, fund’s total expense ratio, if they provide consistent returns, its fund history, risk-adjusted returns, etc. You must also take into account the fund manager’s expertise and experience.
4. How to invest in mutual funds?
Today an investor can easily invest in mutual funds online from the comfort of their home. As an investor, you are offered with various ways to invest in mutual funds. You can either directly visit the branch office of the AMC (asset management company) or the mutual fund house. You can also invest through a broker or an intermediary who will help you with the investment process.
Ensure that your investments are aligned with your risk appetite, investment horizon, and financial objectives. Now, that you are clear with the basics of investing in mutual funds, begin your investment journey today to benefit from mutual fund investments. Happy investing!