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.
Conclusion:
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.
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