Mutual fund investment is one of the most preferred investment avenues to create wealth over the long-term by taking advantage of the capital market. However, since there are multiple mutual fund schemes available, it can be puzzling to pick the best ones. Moreover, for a first-time investor, it could become even more challenging to make sense of the countless perceptions, myths and opinions regarding mutual funds.
This article lists ten factors to give you a head start before you invest in mutual funds online.
- Existence
It is recommended to invest in a mutual fund scheme which has been in existence for at least five years. This allows you to monitor its past performance and avoid the risks of investing in a new plan.
- Fund manager’s credibility
The fund manager plays a decisive role in the performance of your portfolio. Ensure you look into his experience, previous track record and qualifications to confirm he is the right candidate to help you meet your financial goals.
- Assets under management
A fund with a large corpus size can give you the confidence that numerous people have subscribed to it. As a new investor, you can make a SIP investment in a scheme with a significant asset base.
- Risk appetite
Before you invest, know your risk tolerance levels, i.e. whether you are an aggressive investor, a moderate one or a conservative investor. This can help you select the best-suited scheme.
- Returns
You can check the returns offered by a mutual fund scheme during different periods and compare it against an index fund to know how it fares before investing.
- Advantages of SIP
You can invest in mutual funds via lumpsum payments or SIPs. With SIPs, you can invest weekly, monthly or quarterly, unlike a lump sum amount that requires one-time investment.
- Fees and loads
Some mutual fund houses charge entry and exit load fees when you join the fund or sell your units. Plus, they also charge an expense ratio to operate the fund. It is imperative to assess these costs.
- Taxation
You may want to understand taxation aspects before investing in a mutual fund scheme as it can significantly impact your earnings in the long run.
- Power of compounding
The power of compounding is one of the best mutual fund benefits. The sooner you invest, and the longer you stay invested, the more significant could be the impact of compounding on your returns.
- Market risk
Lastly, mutual funds are subject to market risks, even though they are regulated by the Securities and Exchange Board of India. Hence, it is essential to read all the scheme documents and understand the various clauses before investing.
Conclusion
You can consider the factors mentioned above before you invest in mutual funds to build a strong portfolio and enjoy the benefits of mutual funds.
Mutual funds are a great investment option for beginners. However, mutual fund investments are subjected to market risks, so investors must make sure that they are not jumping in the fund immediately. First, they should invest in the basic option like fixed deposits and then progress to other options. Also, they should have enough knowledge about how mutual fund investment works.
If you are a beginner mutual funds are a great investment option for you. When you select one mutual fund and you see that there are several people who are investing in that fund you will feel confident. But do not invest blindly. Learn about the risks and then select a fund. You can invest in large-cap mutual funds that have a good track record. Large-cap mutual funds have a lower risk which is great for beginners.
Thank you for sharing this useful information about Investing in Mutual Funds. It was very informative.
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Very nice post in the way it has been explained, much informative.