Warren Buffet said –Never Depend on a Single Income. Make Investment to Create a Second Source.
Financial literacy is increasing day by day among people, along with the awareness of investing their hard-earned money and making more money from it. One of the methods of investing is through mutual funds. For a new investor, investing in mutual funds can be scary. In this blog, we have discussed the meaning of mutual funds and how to invest in them.
Table of Contents
What is a Mutual fund?
A mutual fund is an investment scheme managed by a professional fund manager. In this type of investment, money from many investors is pooled together and then invested in stocks, bonds, and various other money market instruments. Mutual fund investors purchase shares, which are kept for the long term. The fund manager takes the investment decisions on the funds which he manages.
Investing in mutual funds is an opportunity for investors to make money and works better than saving money in fixed bank deposits.
There are various funds in which the investor can invest, and sometimes the fund’s name may help the investor determine the fund’s focus. If the fund is a large cap fund, the investment will be done in the companies with a large capitalisation.
We at Venus Tradex will help you by suggesting some significant funds according to your profile.
Reasons To Invest In Mutual Funds
An investor can choose to invest through mutual funds for various reasons. Some of these are:
- Investing through mutual funds helps investors to diversify their portfolios. The diversification of the portfolio lowers the risk that he may incur.
- One of the reasons to invest in mutual funds is because expert fund managers manage them. Our team at Venus Tradex is very experienced, and you can contact them in case of any queries.
- If the investor invests through SIP, he can invest a small amount of money at regular intervals like monthly, quarterly, etc.
- Investing in a mutual fund is a simple process as the procedure of KYC can be done online, and investing is fast becoming easier day by day.
- If the investor opts for a Systematic Investment Plan (SIP), he invests some part of his income on a regular basis.
- One reason for investing in mutual funds is that they provide high returns as compared to other forms of investments.
Types Of Mutual Fund Plans
There are three types of mutual funds. These are:
- Equity Mutual Fund
Equity mutual funds are those in which the investor invests in equity stocks and instruments related to it. These funds generally generate good returns. Equity mutual funds include various types of funds, such as large-cap, mid-cap, small-cap, and growth stocks.
- Debt Mutual fund
If the investor chooses to invest in debt mutual funds, he will invest in debt instruments like company debentures, government securities, corporate bonds etc. It is also known as a fixed-income fund. In this fund, the investors face a lower risk.
- Balanced Mutual Fund
The balanced mutual fund is also known as a hybrid mutual fund. These funds invest the money in two or more asset classes. The hybrid funds include the Equity oriented hybrid fund, where 65% of the investment is done in equity, and the Debt oriented hybrid fund, where 65% is done in debt.
What Is SIP (Systematic Investment Plan)?
The full form of SIP is Systematic Investment Plan, and it is one of the most popular ways of investing. SIPs help investors invest their money in small amounts (as per their convenience) and at regular intervals, whether daily, monthly or quarterly. Through this, the investors learn discipline in finance and can create a vast corpus without cutting back on their lifestyle.
How To Invest In Mutual Fund?
Before investing in a mutual fund, the investor should decide his financial goals and the amount of risk he is willing to take. The investor must also complete his KYC and allocate the funds he wants to invest.
There are many different ways in which the investor can start to invest in mutual funds.
It can be done directly through the Asset Management Company (AMC) website, where the investor completes the application process online by submitting the PAN card and the KYC documents.
The investor can also start investing in mutual funds through the Demat Account. For this, the investor needs to have a Demat account which can be opened easily with us at no cost. If the investor already has a demat account, he only has to log in, select the fund he wants to invest in and transfer the required amount online.
Investment in Mutual Funds through SIP
Mutual fund investments can be done through Systematic Investment Plan (SIP). For this, the investor must ensure that his KYC process is complete, which can be done online easily with us. Then the investor chooses the fund after extensive research and seeing that all his goals are being met.
After selecting the type of fund, the investor decides the SIP amount, i.e. the amount he wants to invest every month on the same date and also sets auto debit from his bank account.
Investment in Mutual Funds through Lumpsum Investment
The investor can also choose to invest his money through a single-time payment in a mutual fund. This is known as a Lumpsum Investment, which can be done online as well as offline. The KYC process of the investor needs to be completed. Then the investor can choose the fund he wants to invest in and make a one-time payment for the amount he wants to invest.
Risks Of Investing In Mutual Funds
Investing cannot be deemed 100% safe, whether it be in any form. While investing in a mutual fund, the returns and increase in the capital are not guaranteed at all, and there is always a market risk involved in it. A mutual fund also contains the risk that the value of the investment may go up or down. But along with these risks, there is a chance for investors to make more money.
Mutual funds are safe investment choices for investors as they are regulated by the Securities Exchange Board of India (SEBI), but they still are subject to market risks. Before investing in mutual funds, investors should do proper research as it will help them secure their finances.
Investing in mutual funds has several benefits and is very simple to understand. The investor should know the amount of risk he is willing to take before investing in a mutual fund and should check his portfolio once a quarter.
What is NAV in a mutual fund?
NAV is a net value asset that denotes the mutual fund’s performance. It tells the market value of a fund and changes daily.
What is the difference between Lumpsum Investment and SIP?
The lumpsum investment is a one-time investment, while in SIP, the investor invests a fixed amount daily, monthly or quarterly.
Is Mutual Fund safer than Stocks?
Mutual funds are safer than stocks as the money invested in mutual funds is allocated to different securities, which include equities, bonds, etc., while in stocks, the investment is only made in shares.