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All about Mutual Funds Investment

Mutual Funds are primarily capital investments that have been grouped. This means that the fund gets raised from many investors, and a fund manager invests the resulting pooled capital in various well-researched and hand-picked assets and asset classes. The fund manager’s goal is to provide investors with high returns.

When you buy Mutual Funds, the Asset Management Company (AMC) you choose assigns you Mutual Fund units based on its Net Asset Value (NAV). This represents the fund’s inherent value. For example, suppose you invest Rs 5,000 in a fund with a NAV of Rs 100; you receive 50 units of that fund.

This article provides a guide on various types of Mutual Fund Investment and how they work.

What are the types of Mutual Funds?

You can select from various Mutual Funds based on your investment amount, time horizon, risk tolerance, goals, and tenure. Let us not forget that opportunity and risk are always paired together while buying these funds.

Balanced funds 

When you are entirely focused on achieving your goals but have a low-risk tolerance, the new strategy is to invest in Balanced Funds. These funds are well-diversified, which offers a well-thought amalgamation of Stocks, Bonds, and Money Market Instruments for a balanced return.

Equity investment funds

Small-Cap, Mid-Cap, Large-Cap, and Multi-Cap Equity Funds invest primarily in Stocks and are classified according to the proportion of assets allocated to Equity as an asset class. According to Securities and Exchange Board of India (SEBI) guidelines, an Equity-oriented Mutual Fund invests a minimum of 65% of the assets in Equity.

Money Market Mutual Funds

Money Market Funds are popular among investors who avoid the Stock Market for a safe place to park their money in the short term and earn slightly higher returns than Savings Accounts.

Debt Funds or Fixed-Income Funds

Fixed-Income or Debt Funds invest most of their assets in the debt market to earn a guaranteed return while reducing risk. The risk-averse investor prefers this type of fund because of the lower returns but the safety of capital.

Why should you invest in Mutual Funds?

When you are not a natural stock picker, investing can be stressful. So, take tips from brokers and agents but have your research in place as well. Mutual Funds are the financial basket for you if you do not have the time or expertise to track the markets, do not have a large corpus to invest in, need a tax break, and expect your investments to be liquid. The following factors make Mutual Funds a preferred investment vehicle for millennials:

Diversification

Diversification across sectors, instruments, and companies reduces risk and increases expected portfolio returns.

Economies of scale

Diversified portfolio management can consume a significant portion of your investment as processing and transaction fees, charges, and brokerage. On the other hand, purchasing a Mutual Fund is like a large purchase that provides economies of scale.

Transparency

These funds are among the simplest investment tools and share detailed information about fund managers’ portfolio choices. SEBI also plays an active role in ensuring transparency, fairness, and accountability to investors.

Liquidity

Open-Ended Funds are highly volatile, and you can exit the investment scheme at any time.

Professional guidance

Mutual funds get created through extensive research, analysis, and experience. A professional fund manager carefully selects Stocks and Bonds based on your objectives and time horizon. It protects you from buyer’s remorse and financial inattention.

How to Invest in Mutual Funds?

Due to the sheer ease of access, clarity, and regulation, most investors now prefer to make Mutual Fund Investment online. Follow these easy steps for the same:

Step 1: Visit the fund website

Visit the website or download the chosen AMC, bank, or brokerage firm apps through Google Play or App Store on your device.

Step 2: Submit the requested documents

Complete your e-KYC, upload the necessary documents, and digitally submit it along with filling out the online form

Step 3: Wait for the verification

Complete the In-Person Verification (IPV) by visiting the nearest branch or using your webcam in a video conference.

Step 4: Select a fund

Choose the fund you want based on your investment amount, risk tolerance, time horizon, and fund pricing.

Is a Demat Account required to invest in Mutual Funds?

It is required to open a Demat Account to invest in Mutual Funds. However, as a wise investor, you will know the power of diversifying your financial portfolio and opening this account allows you to do the same. You need not put all your money into a single investment instrument or asset class with this account.

It is recommended that your investment portfolio includes a combination of Mutual Funds, Stocks, Derivatives, Fixed Income Instruments, Commodities, and so on. However, to invest in the above asset classes, you need to hold a Demat Account, which is necessary and beneficial. If you already have this account, use it to store your Mutual Fund Investments or their units.

You can track and manage your investments, including your Mutual Fund portfolio, from a single interface.

How to open a Demat Account?

To open a Demat Account online, follow these simple steps:

Step 1: Visit your chosen Depository Participant (DP) website.

Step 2: Select the ‘Open Demat Account’ tab.

Step 3: Enter the requested information, such as your name, email address, and phone number.

Step 4: Enter the One-time password (OTP) that gets sent to you.

Once your application gets submitted, you receive formal communication from the DP. They contact you to complete the formalities mentioned above and open the Demat Account. If you are uncertain about your Mutual Funds Investment decision, it is best to seek professional guidance. This helps you understand your fund better and make an informed decision.

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