Everything that you need to know about mutual funds before investing

 A lot of us struggle in our personal lives and face cash crunch. The soaring prices of basic necessities has made living impossible especially for people living in metropolitan cities like Mumbai. Inflation has had a great impact on everyone, and the salary is just enough to get through the month. In such trying times if there is one thing that could have saved us is savings. However, inflation has the tendency of eating up all the savings as well. To ensure that our future isn’t a struggle as well, we need to start investing what we save so that we can earn some decent returns and financially secure our future.

But before you invest your money in any type of investment scheme, understand your goals, determine the number of years you have in hand before you need the accumulated corpus and last but not the least, understand your risk appetite to determine which investment avenue is more suitable.

If you carry average to high risk appetite and do not mind seeking capital appreciation by investing in market linked schemes, you can consider investing in mutual funds.

Mutual funds are investment products where the Asset Management Companies running mutual funds collect money from investors sharing a common investment objective and invest the capital raised across various asset classes and money market instruments. Some of the most common instruments in which a mutual fund invests is equity, debt, gold, international securities, private sectors etc.

If you are planning on investing in mutual funds to achieve your financial goals, here are few things to keep in mind before investing –

Even novice investors can invest in mutual funds

Some people might ask, “Why should I invest in mutual funds when I can directly invest in stocks and mutual funds invest in stocks as well?” Well, mutual funds offer active risk management which makes them a perfect investment option even for ‘know nothing’ investors. To invest in stocks, one may need to have a thorough knowledge about the market and how the indices react to market volatility. But since mutual funds have fund managers, investors do not have to do worry about buying or selling securities. They can buy units of a mutual fund scheme and overtime earn some interest on the amount invested.

Mutual funds do not guarantee returns

Yes, it is true that mutual funds have outperformed all other fixed interest offering schemes in the past but that doesn’t mean they guarantee capital appreciation. Mutual funds have a high risk rewards tradeoff. They can prove to be volatile over the short term. Mutual funds invest in equity and we all know that equity markets fluctuate from time to time. This is why investors should understand that although mutual fund schemes have the potential to offer decent returns, one cannot expect guaranteed returns.

Mutual funds have SIP and lumpsum investment option

There are multiple ways to invest in mutual funds – a retail investor can either make a onetime lumpsum investment or they have the option of opting for the Systematic Investment Plan. SIP is an easy and convenient way to invest in mutual funds, especially if you wish to invest small fixed sums at regular intervals instead of making bulk investments.

All an investor has to do is complete all the pre-investment formalities, become KYC compliant, decide on a date to invest every month and decide on the monthly SIP sum. If they allow auto debit, every month on the predetermined date, the predefined Sip sum is debited from the investor’s savings account and electronically transferred to the fund. This is the simplest way to ensure that you continue investing the scheme of your choice till your investment objective is accomplished.

To understand mutual funds is detail, please seek the help of a mutual fund advisor.

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