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A Step-by-step Guide On How To Invest In Mutual Funds
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Mutual funds lay the foundation for a financially prosperous and sound future. Mutual funds are a place where a group of investors pool money, managed by a fund houses’ manager. The common goal is to achieve their financial objective. It is the perfect investment option for a common man or small investors. It offers them an opportunity to invest in a diverse portfolio that is professionally handled by fund managers.
These fund managers invest the accumulated amount in several financial instruments such as equities, bonds, money market instruments, and other related assets. Each investor gets hold of some units in the scheme they wish to hold funds. The gains are proportionally distributed amongst the investors. The costs such as management fees, administrative charges, etc. are deducted from the profits. You could also invest through a mutual fund app to avoid the paperwork and tedious process.
But how to invest money in a mutual fund?
Investing in mutual funds is a straightforward and hassle-free process. To begin with the investing process, you need the following documents handy:
• PAN card
• Bank account details
• Know Your Client (KYC)
Once you have these in place, develop an investment strategy before beginning the financial goal planner process:
1) Know the risk tolerance: There are different types of mutual funds available in the market. Each carries a different risk level. Even if you are conservative risk-taker, you can add one or two risks. Money market funds generally carry a low-risk level. Stocks and bonds carry higher risk levels. Target date funds are a mix of investments.
2) Research the market: Before you take the plunge, you need to have a good understanding of the type of funds, the possible returns associated with the funds, and the expenses involved. You can learn a lot by reading about the funds on the internet. You could also download the consumer guide to gain knowledge on mutual funds.
3) Visit fund house portals: Fund houses have their website in place who offer risk assessments for each mutual fund. Compare them with your risk tolerance level and then decide which plan to go for. These services also provide details on charges involved and how much expenses will eat up your returns. Also, do not go based on the name of the fund. Not necessary that if a bank carries the name of a particular fund, it is a reliable one.
4) Choose between active or passive investment: An actively-managed fund will offer you more flexibility but provides higher fees to the fund manager. Passive investment is what most of the investors opt for. Index-based funds involve lower prices than actively-managed ones. But they could also underperform in the long run, owing to the taxes and charges.
5) Decide investment horizon: The final step in the process of how to invest in mutual funds is the investment tenure. Generally, you can reap the benefits of mutual funds if you remain invested for at least five years. The longer you hold your shares, the better the returns.
Swarali Chavan is a finance professor who loves study about market investment instruments. She has written on mutual fund app. Through this article, she has given a step-by-step guide on investing in mutual funds for beginners
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