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 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
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).
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