How to invest in a mutual fund?

How to invest in a mutual fund?

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Many individuals want to invest in mutual funds these days. However, many of them are clueless about how to start the process. We receive many messages from our readers on our Facebook page every day: how do I start investing in mutual funds?

Identify your goals

Before answering the question, we ask investors to first list out their goals. This, we tell them, would help them to decide on their mutual fund investments. Also, they would know how much they need to invest to achieve each goal.

The idea is very simple: if a person is investing to achieve a short-term goal that needs to be achieved in a couple of years, the person should invest in debt schemes. When you have a short-term goal, you should not expose your investments to unnecessary risk. You don’t have time in hand if something goes wrong.

However, if you have a financial goal that needs to be met after five years or so, you can bet on equity mutual fund schemes to achieve them. Equity is considered ideal to meet long term goals because it has the potential to offer superior returns than other asset classes over a long period.

Know your schemes

There are a plethora of schemes within the debt and equity mutual fund universe. How would you choose the right mutual fund scheme? Simply put, you should choose a scheme that is in line with your goal, investment horizon and risk profile.

You can take a look at a story which discusses various debt mutual fund schemes and who is suited for. For more details, read: Know your debt mutual fund schemes 

Equity mutual fund schemes are easy to follow. All you need to do is to find out whether they are suitable for someone with your risk profile. You may read this story to find out more: Know your equity mutual fund scheme 

Hire a mutual fund advisor

If you are new to investing in mutual funds, you must consider hiring the services of a mutual fund advisor. We do not recommend DIY investing to new investors. In most cases, it is a sure way to lose money.

A seasoned advisor may help with the formalities and even recommend schemes to you. He would also be available to clarify your queries on your investments. Most advisors also help investors with keeping track of their investments and timely sell recommendations. These things are extremely important to create wealth over a long period.

You also have the option of investing through broking websites. Some of these websites offer recommendations. Some websites offer robo advisory. Check with your friends or colleagues whether these sites are dependable before signing up. Some mobile application also allow you to invest in the regular plans of mutual fund schemes.

You can take charge of your investments

Do you know enough about mutual funds? Do you think you can take the formalities of investing, choosing schemes, keep track of them, buy/sell decisions on your own? If yes, you may go ahead and invest in direct plans of mutual funds.

Direct plans of mutual fund schemes save on commissions. The money invested can offer sizeable extra returns over a long period.

As the name suggests, direct plans are meant for investors who can invest directly (either online or offline) with the mutual fund house. If you have your PAN card, Aadhar, cheque book, you can invest directly through the mutual fund website. You can also visit the mutual fund branch, fill up the form and offer copy of PAN, Aadhar, and cut a cheque to make the investment.

Some websites and mobile applications also let you invest in direct plans. Well-informed investors can use such sites to invest in direct plans of mutual fund schemes.