How To Invest In Mutual Funds
Posted by Creditkaro
How To Invest In Mutual Funds
We should first know about about the types of mutual funds before we start researching How to Invest in Mutual Funds. Mutual funds are generally categorized on the basis of investment purpose, their' structure, and the nature of the schemes, and from that point of view, mutual funds can come out in at least seven types. They can be funds for growth, funds to be preserved for fixed income, the funds that save tax, liquid funds, the balanced funds, gilt funds, and exchange-traded funds (ETFs).
Considering the structure, generally, two types of mutual funds are observed. They are close-ended and open-ended schemes. While explaining the character of mutual funds, three types of mutual funds can be seen such as equity, debt, and balanced. Sometimes, the specialists make overlying in the categorization of some schemes like equity growth funds as these types of mutual funds also come under the section based on the purpose of investment as well as the in the section of mutual funds' character.
Classification of Mutual Funds in Detail
Before going through the process of How to Invest in Mutual Funds the interested people who wish to invest in mutual funds must know about the classification of mutual funds in-depth. Here is the explanation:
Growth or Equity Schemes: These funds are invested in equity shares and the purpose of investment is capital earnings over the medium or long-term. But the investors who wish to keep their money in equity schemes may have to go through formidable risks as this scheme is connected to the highly unpredictable stock markets. Still, the investors can get good returns if they put the money for the long term. That might be the reason market experts opine that despite the extreme level of unpredictability putting money in equity schemes can be a perfect investment option.
Debt Funds: This fund is also called fixed-income funds. Under this scheme, the funds are put in fixed income or debt securities such as debentures, corporate bonds, commercial papers, government securities, and various money market instruments. For those investors who nearly try to get ensured of a regular, steady, and risk-free income, debt funds can be the perfect option for them. Gilt funds, liquid funds, short-term plans, income funds, and MIPs are the subcategories of debt funds.
Balanced Funds: When the money is devoted to a combination of debt instruments and equity shares it is termed balanced funds. Investors can expect a regular income and growth at the same time with these funds. Balanced funds offer good investment options for investors who will not be anxious even if they face modest risks over medium or long-term investments.
Tax Saving Funds: Anyone trying to their capital and at the same time trying to save tax also, can choose tax saving schemes. Investors can take pleasure in reductions in tax under Section 80C of the Income Tax Act, 1961. The tax-saving funds are also known as equity-linked savings schemes.
Exchange-Traded Funds (ETFs): ETF trading in a stock exchange covers a lot of significant aspects. This scheme helps the investors to expand their pattern of investments as they can gain assets such as bonds, gold bars, oil futures, foreign currency, etc. Investors dealing with ETF can have the suppleness of buying and selling units on the stock exchanges throughout the day.
Open-ended schemes: The investors trading under open-ended schemes can purchase and sell units constantly and they can also enter and exit according to their convenience. Purchased and sold funds are made at the Net Asset Value (NAV).
Close-ended schemes: Under this scheme, the unit capital is fixed and the investors can sell only a specific number of units. The investors are not able to purchase units in a close-ended scheme after the New Fund Offer (NFO) has passed. It means they cannot go out of the schemes before the end of the term.
How to Invest in Mutual Funds in Detail
Before deciding to invest in mutual funds the investors must make research How to invest in Mutual Funds in detail. The research work will help the investors to choose the proper places before investing their valuable money. This thorough study can also guide the investors to mount up wealth in due course.
According to the market experts, the first step for the investors before they invest in mutual funds is to set specific purposes which means the respective investors require thinking specifically about whether they have plans to buy houses after a certain time or put in money for their children's education or wedding purpose or post-retirement, etc. Even if the investors do not have specific goals, the respective investors should at least make a lay-out on how much wealth they want to gather in how much time. The investors, after making perfect assessments of the purposes of their investments will be able to avoid the risk of investments and get to know about payment methods, and the lock-in period also. Then the investors have to fulfill the KYC requirements by submitting PAN cards, residential proofs, age proof, and other necessary documents mentioned by the fund house before initiating investments. Then investors have to know the available schemes in detail as the mutual fund market with several schemes can offer various options to the investors. Schemes are there that suit some investors while there are plans that do not seem to be beneficial to the investors. According to the investment specialists, in that case, investors should take advice from experts on the subjects before deciding to invest. The financial advisors can guide the investors on the specific plan that can bring high returns for the investors. Then the investors should think about the risk factors. It is known that putting in money has several risks. Obviously, the plans that are expected to give back high returns offer high risks also. So, the investors who are ready to accept risk factors against high returns can choose equity schemes But those people who wish to get back moderate returns and without any major threat to their returns can select debt schemes.
Ways to Invest in Mutual Funds
Investors can make investments in mutual funds in different ways. They are:
Investment with the fund house Physically
The people can make visits to the nearest branch offices of the fund houses and make investments in their chosen plans. In that case, the respective investors have to carry all their necessary documents such as address proofs, identity proofs, canceled-cheque leaves, and passport-sized photographs. The investors after filling out application forms attached with necessary documents have to submit and then wait for the approval for investments.
Offline investment through a broker
There are mutual fund brokers or distributors who guide the investors to complete the entire process of investment. The brokers or distributors will provide the respective sponsors with all information related to investments and the brokers or distributors will also guide them about the features as well as benefits of different plans. The brokers and distributors will also make investments on behalf of respective investors. The brokers or distributors will take fees for providing guidance and their fees will be omitted from total investment amounts.
Online through the official website
Most fund houses have introduced online facilities nowadays for investment in mutual funds. In that case, the investors have to go by instructions mentioned on the official websites of the funds houses. The respective investors can also complete the KYC process online nowadays. After the information gets verified at the backend and once the verification is done, investments can be started. The online procedure of investing in mutual funds is easy, quick, and hassle-free and significantly, online methods of investments are preferred by most investors.
Through an app
Many fund houses permit investors to invest through apps that can be downloaded on mobile devices. The apps will permit respective investors to do everything regarding investment in mutual fund schemes. The investors can buy or sell units, see account statements, and check other details regarding their folios through apps. Some of the fund houses that allow investments through apps are SBI Mutual Fund, Axis Mutual Fund, ICICI Prudential Mutual Fund, Aditya Birla SunLife Mutual Funds, and HDFC Mutual Funds. Some apps like myCAMS and Karvy allow investors to invest as well as access the details of all their investments from multiple fund houses, on one platform.
Amidst the instability of the stock market, mutual funds are one platform where investors can put in their money and get impressive returns also. Mutual funds do not only give back lucrative returns, it is such an instrument that can be diversified. For example, even if some money invested in stocks, is declining from its principal amount, can be diverted to mutual funds for steady and prospective returns over the long term. Then mutual funds have got other advantages such as the investment can be started with a low amount of money and its process is generally hassle-free. Besides, investing in a mutual fund is disciplined. Still despite the advantages, investors have to be careful about making a strategy of investments. If the respective investors choose to put money in equity plans then they have to be aware of the risks as they prevail in stocks.