Mutual funds investment plans seem complicated for new investors. Understanding how mutual funds work followed by investment is important to know. Mutual Fund (opens in a new tab/window) offers you an opportunity to invest in diversified markets such as stocks, shares, bonds, and more which is managed by fund managers professionally.
Advantages of Mutual Funds Investment Plans
A mutual fund is one of the best investment options to save money and grow into wealth. The following are some of the advantages of mutual fund investments:
Investing in mutual funds is completely paperless and hassle-free. You can start investing online anytime and can monitor the performance of invested funds.
2. Low Initial Investment
You can start investing with a minimum amount of 1000 INR/month initially. Also, you get an option to invest in a lump sum or SIP comparatively SIP can give you a benefit of lowering investment cost and power of compounding.
ELSS mutual funds have been so popular these days as tax saving mutual funds with a lock-in period of minimum 3 years under Section 80C of the Income Tax Act, 1961 where you can build wealth and save taxes simultaneously.
4. Professional Fund Management
Your money is managed professionally by fund managers where they have real-time access to the financial environment and adjust your funds to meet your financial goals.
Types of Mutual Fund Investments
There are 2 ways of investing in mutual funds – Systematic Investment Plan (SIP) or Lump sum. Depending upon your income, expenditures, risk profile, and financial goals you can choose to invest through SIP or Lumpsum.
The lump-sum investment allows you to invest money in one-shot while in SIP you can invest in small and regular installments. SIP is preferable as it is easy to manage monthly expenses with small investments. Also, you can leverage the power of compounding in SIP.
Explore various types of mutual funds available in the market and select according to your financial portfolio.
Based on investment objectives, there are 7 types of mutual funds –
- Equity funds
- Debt funds
- Equity Linked Savings Scheme (ELSS) funds
- Liquid funds
- Balanced funds
- Gilt funds
- Exchange-traded funds
Based on the structure, there are 2 types of mutual funds – close-ended and open-ended schemes.
Before investing in mutual funds, it is important to focus on the below points which could help in choosing the right kind of funds:-
- Identify your purpose for investing
- Fulfill the Know Your Customer (KYC) requirements
- Know about the schemes available
- Consider the risk factors
How to Invest in Mutual Funds Online?
Follow these simple steps to invest in mutual funds online:-
- Risk Profiling – This is a process of identifying the amount of risk you are capable to bear.
- Asset Allocation – Here you need to diversify your money between various asset classes. Asset allocation should have a combination of equity and debt instruments in order to balance out the risk.
- Compare mutual funds based on investment objective and past performance.
- Choose the right mutual fund scheme to invest online.
- Diversify your investment and take regular follow-ups to avoid any kind of risk while investing.
Some of the mutual funds investment plans are ideal for great returns but others simply involve huge risk. Therefore, choose your investment plan according to your risk appetite.
Guest Author: Kunal Kalra | Featured Image: Money Crashers