8 Things Every Mutual Fund Investor Needs To Know

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Today there are at least 3500 mutual fund schemes floating around in the market. Which makes the task of picking the right one extremely difficult and daunting. Many first-time investors feel that picking any mutual fund can help them get their desired amount, but it is important to know that every mutual fund scheme is unique and it is tailored to a certain risk profile. Selecting a mutual fund is a rigorous process involving a lot of analysis and parameters. There are several factors that come into picture while picking a good mutual fund.

  1. Pre-requisites

First and foremost, you need to have a bank account and you must be KYC (Know your customer) compliant. KYC verifies you as an investor and you can register for it with a Registrar and Transfer agent or directly through a mutual fund house. You need to have a PAN card if you want to invest more than Rs 50,000 in each fund house each year.

  1. How to choose the funds?

Mutual funds simply the world of investing, but choosing an ideal mutual fund still remains a big task.  Here’s how you can decide how to make the right choices-

  • Debt or equity

Debt mutual funds will give you a steadier but lower return. They have a low-risk profile and can be used to meet short-term goals. While equity mutual funds can give you higher returns in long-term. These shares fluctuate in the short term and thus are suitable for a long-time duration. The chances of incurring losses reduce over time and hence makes it a good investment for long duration. For first time investment, you can go for balanced funds, which 65% of your money goes into equity while the other 45% goes into debt. This combination will give you stability as well as good investment.

  1. Which funds to choose?

Don’t just blindly trust your friends and relatives and go along with their opinions. Research well and opt for funds which have performed well consistently over a long-term period. Look for the star ratings by Value Research.

  1. How many funds?

Two or three funds from different fund houses will be enough to provide an adequate diversification in your portfolio.

  1. Which plan? Direct or Regular.

Direct plan charges a lower annual expense because it does not include the commission. This involves investment yourself without going through a broker. This does save some money, but then you will end up doing all the work yourself, which will quite frankly be a little difficult for a first timer.

Instead, you can opt for a regular plan initially and once you gain enough knowledge you can shift to a direct plan.

  1. Buying funds

After choosing a mutual fund you are ready to buy them. You can do that yourself or through an intermediary broker. You can also choose to invest online at website of mutual fund houses.

  1. Keep a track of your investments

Monitor your investments and keep a track of how well they are performing. With some apps you can get constant updates about the ups and downs of the market situation. But don’t constantly keep a watch on it. Review your investments once in a while and analyse it.

  1. Know when to sell

You will need to sell your funds when it becomes a poor performance or when you need the money to meet your financial goals. You can sell it when you need money for the goals you were investing, in the first place.

If your funds are constantly dipping compared to the other funds, you need to analyse the situation and decide if it should be a part of your portfolio. Also, keep an eye on the fund’s ratings. If the rating drops to one or two and remains there, you should consider selling it.

If you have invested in equity funds, you can withdraw systematically. As you reach your financial goals, you can exit your equity funds and move to debt funds.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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