Mutual funds for beginners

A mutual fund is a pool with a certain investment objective. This investment objective is laid out in the factsheet and other details related to the mutual fund.

Mutual funds for beginners

Mutual funds are operated by professional money managers known as fund managers, who allocate the fund’s assets and attempt to produce returns for the investors.

The investors make money through regular dividends/interest and capital appreciation. They can either choose to reinvest the capital gains via the growth option or can earn a steady income by way of the dividend option.

Why one should invest in Mutual Funds

Low investment

You can build a mutual fund portfolio by investing a minimum of Rs 500 a month through SIP in a mutual fund of your choice. You also have the option to invest in either a lump sum or a systematic investment plan (SIP).

Tax Saving

Mutual funds provide the best tax-saving option. You get a tax deduction under section 80C up to a maximum of Rs 150,000 per financial year.

Professional fund management

Mutual fund investment is managed by the fund manager who is backed by a team of researchers. The fund manager formulates the investment strategies for your asset allocation.

Higher return potential

For an investor with a moderate to high-risk appetite investing in equities through mutual funds would help him/her earn high returns. Investors with a low-risk appetite could invest in debt mutual funds.

Important things you should consider as a beginner

a. Fix an investment goal

b. Choose the right fund type

c. Shortlist and choose one mutual fund

d. Diversify your portfolio

e. Go for SIPs instead of lump-sum investments

f. Keep KYC documents updated

How to start SIPs

A Systematic Investment Plan (SIP) is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP allows one to buy units on a specified date of each month so that one can implement a saving plan for themselves.

How to start SIPs

How to get started with SIP STEP 1: Complete know your customer (KYC) formalities To invest in mutual funds, you will first need to become KYC compliant. You would need the following documents:

• PAN Card

• Proof of address

• Passport size photo

• Cheque book

You can start by visiting the website of fund houses that offers the eKYC facility. At this stage, you will have to provide your name, date of birth and contact details, etc. Upload soft copies of your PAN card, address proof, and photo. STEP 2: In-Person Verification In case the KYC is incomplete, you will need to schedule an appointment for a video call. The objective is to confirm your identity through a webcam. You can also use your Aadhar card to simplify the process.

• Enter your Aadhar number

• Enter the OTP sent to your linked mobile number

• Your basic details will be automatically filled in

No need for verification via a video call STEP 3: Register for a SIP Once your KYC is complete, we will help you set up the account on NSE. It takes 1-2 days for the activation of the account. STEP 4: Select the right SIP Select the portfolio, conservative, moderate, or aggressive and accordingly the SIPs selection is pre-decided. In case, you would like to select your funds, you can do so as well.

Power of Compounding

Many of us may have heard about the concept of compound interest. However, it starts only when we start managing our finances as working adults that we understand the impact and power of compounding.

Power of Compounding

The knowledge of the power of compounding not only helps you to earn a higher return on your investments and savings but also helps you to plan for your life’s important milestones.

The power of compounding helps increase your savings by accumulating more interest on money that was previously earned as interest.

What is the Power of Compounding?

Power of compounding is essentially an act of ‘adding interest on interest’ i.e. the amount of money invested, will generate earnings from both the initial principal amount and the accrued earnings from preceding compounding periods. Eventually, the power of compounding helps to grow your wealth over a certain period.

The most important aspect of the power of compounding is that your investments accrue interest on both the base capital and the previously earned interest. As an investor, you must keep in mind that the power of compounding lies in its ability to reinvest earnings on your investment. It means that you should not look to withdraw your returns due to short-term fluctuations.