Mutual Fund Investment Tips

There are so many schemes out there for investments. You can choose from including mutual funds, fixed deposits, recurring deposits, insurances, stocks, and bonds, etc. Among these schemes, mutual fund investments have appeared as one of the most attractive schemes in recent times. You can expect higher return compared to the other investment schemes except for stocks. The most interesting part is that investors don’t need to invest their time to monitor their investment. Professional Mutual funds are a convenient investment vehicle for individuals with no previous knowledge about investing for a small fee. 

Mutual Funds have increased generous reputation in a previous couple of years, maintained by their reliable performance at least partially due to the liquidity-driven rally in equity markets not just in India but also globally. In this way, whether you are a novice or an experienced investor, you can start investing in mutual funds and watch your wealth grow in long run. You can expect at least 15% on an average return in medium to long term.

Let look at the advantages of mutual funds - Mutual Fund Investment Tips:

Diversify investment amount:

Diversify specifies reducing risk in investment. Let’s say you work from your home for your office and you only have a single internet supplier at your home. And you are working on an urgent task and internet connection gets disconnected due to some reason. You won’t be able to complete your task within the scheduled time. But if you have two connections then you can always use your alternative connection to complete your tasks. Every mutual fund spreads the money across a large number of investments. In any well-managed fund, this extent is balanced not just across different companies but also across different sectors, thus providing optimal safety. The pleasant thing about mutual funds is that they allow everyone to hold a diversified portfolio. The reason why investors invest in a diversified portfolio is that it raises the expected returns while reducing the risk.  

Professionally managed by the fund managers:

Mutual funds appoint investment experts known as fund managers who are reinforced by a team of research analysts with a number of years of experience. They find the best stocks in the market and track their performance on a regular basis to guarantee that they deliver high returns to the investors. All you need to do here just pick the right mutual funds for investment. And then fund managers will do the rest. This isn’t to say that you shouldn’t review your investments in mutual funds. You positively should, but not too frequently. If you’ve chosen your mutual fund sensibly, reviewing it once a year is usually enough.

Liquidity & Lock-in period: 

The mutual funds are the hot favourite for the investors because of the liquidity. Investors have the benefit of getting their money back almost suddenly in case of mutual funds, based on the NAV (Net Asset Value) at that time. The only thing you need to watch out for is exit load, which may apply to particular funds. There are two types of mutual funds, one is open-ended and another one is close-ended. Lock in period is not available on open-ended funds. Open-ended funds can be traded like stocks. You can sell open-ended mutual funds based on the Net Asset Value at that time when you need money. I personally won’t recommend you to sell your mutual funds until you have reached your goal or underperforms. 

On the other hand, the unit capital of closed-ended funds is fixed and they sell a particular number of units. You cannot buy a closed-ended fund after its NFO period is over unlike open-ended fund. Therefore, new investors cannot enter nor exit before the specified period. 

You Can Invest Small:

You can start investing in mutual with a very small amount. For example, you can invest as low as Rs.100. Some funds like Reliance Small Cap Fund allow you to invest starting with just Rs.100. There are so many good performing funds are also available for investing starting with Rs.500 as well. And most other funds will let you start investing with just Rs 1000.

You can also choose between two different investments styles – lump sum and SIP investments. For a lump sum investment, you pool your capital and invest in the form of a huge single investment at a favourable moment. On the other hand, a SIP is a smaller investment made at regular intervals, usually on a monthly basis, over a period of time in a mutual fund of your choice. The SIP is perfect for investors looking for a controlled methodology to making mutual fund investments.

Tax Efficiency:

When you are buying selling stocks yourself then you have to pay taxes on the profit you make. But this doesn’t happen when that buying and selling is being done on your behalf by a mutual fund. Fund managers could keep buying and selling stocks as needed on your behalf. That’s why you only have to pay taxes when you are redeeming your mutual fund units.

All mutual funds companies come under the preview of SEBI and they need to make required disclosures. All the stocks your mutual fund held are known to you. Fund managers qualification and track record are known to the investors. The net asset value (NAV) of the fund is updated every day. Mutual fund investments are also very safe when you redeem your units; money goes straight into your bank account.