Basics of Mutual Funds

The financial institution invests and manages funds of Individual as well as institution called as Asset Management Company (AMC). The individual can invest money in Mutual Funds through lump sum or through SIP i.e. Systematic Investment Planning. SIP is a Systematic Investment Planning allowed investors to invest in particular sector stocks or mutual funds with fixed amount of money with regular intervals. (Monthly or Quarterly)

Benefits of SIP to Investors

Disciplined Savings

Investors committed to invest fixed amount at regular intervals which promotes a habit of savings and investment. This habit is essential to build long term wealth.

Long Term Wealth Creation

The regular savings and investment habit coupled with compounding effect can create wealth over the long run.

Professional Management

Investors need not to take active participation in managing the fund as it is managed by professional fund managers. Investors are benefited with expertise of professional fund managers.

Averaging the purchasing Cost

SIP allows the investors to invest at regular intervals so the market ups and downs are not much affects the portfolio. By averaging out the purchase cost the overall investment risk comes at minimal level.

Allocation of Fund

The fund allocation to a particular sector or particular type of mutual fund is possible at regular interval.

Key aspects while selecting Fund

Investment Goal

First define your goal i.e. for wealth creation, retirement planning or buying a house. It helps to select the time period of investment and amount per month. The Investment Goals will influences the choice of fund.

Risk Tolerance

Asses your risk tolerance level and go for the suitable fund. If you are conservative then Debt fund may be suitable. If you want to invest in aggressively for wealth creation then equity fund is right option.

Diversification

Mutual offers investments in different sectors and asset classes. The risk in diversified portfolio is comparatively low.

Performance History

Past performance provides insights about the return generated by fund. It is not guarantee that fund will generate same returns in future but it provide some idea about the fund performance.

Fees & Expenses

Expense ratio is one of the important key aspect while investing in Mutual Fund. Generally actively managed fund have higher fees than passively managed funds.

Fund Managers Track Record

A professional experienced and skilled fund manager can make a difference. Research about the fund manager’s experience and track records.

Exit Loads

Understand the terms and conditions of exit and how much Exit loan need to pay at the time of redemption of units? The lock in period of fund also need to understand before investing the money in any mutual fund.           

Tax Implications

Understand the Tax implications of the Mutual fund investment. Some fund offer the tax benefits under Income Tax Act.

Reviews & Ratings

Consult with experts, read experts opinion and ratings sentiments about the mutual fund before investment. Remember, it is very essential to consult a financial advisor before making and investment decisions.