Are you one of those people who believe that investing in mutual funds is probably the right thing to do but don’t know if you should start investing the next week, next month or the next year?
Well, let us answer all of these questions. If you know that investing in mutual funds is something that won’t harm you or your finances, then you should also know that right now is actually the right time to start investing. To be clear, there is no fixed time to start investing. As soon as you start earning, you should start investing.
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Why should you Invest in Mutual Funds
Mutual funds are one of the most popular and transparent modes of investment. There are quite a number of benefits to investing in mutual funds. We have listed a few of them here-
- You can start investing in mutual funds with an amount as low as Rs.500, in some schemes the amount can be as low as Rs 100 too, when investing via the SIP mode
- Mutual fund investments are properly documented and regulated by SEBI (Securities and Exchange Board of India), thereby eliminating the chances of fraud or misleading the investors
- Mutual fund investments such as the ones in ELSS offer tax benefits (tax deduction of Rs.1.5 lakh per year). The lock-in of 3 years is also the lowest amongst other tax saving instruments
- Mutual Funds can be considered to be one of the most efficient and reliable investment options. Investing in mutual funds only requires individuals to have a bank account and get their KYC done
- Mutual Fund managers actively manage the investors’ fund and the scheme’s portfolio. The investors do not have to worry and/or track fluctuations in the market constantly to make active changes themselves
- Taking out only a small sum from your monthly income, and investing through the SIP mode of investing, will help you accumulate a huge corpus for your future goals such as funding your own education, vacations abroad or your wedding expenses
- Mutual fund investments are highly flexible, implying that investors can invest and withdraw funds as and when they wish to (except in ELSS).
Read More: All that you should Know about Mutual Fund Investments
Waiting for the Right Time to Invest in Mutual Funds
There are no such rules that state that mutual fund investors have to be earning individuals, neither do mutual fund investments have an “ideal” time for investment. Mutual fund investments are free of any time boundations and modes. This implies that you can invest at any given point in time and use any mode that you wish to. For instance, if you have already gathered a corpus for investment, you can invest through lump sum mode of investment; on the other hand, if you wish to invest with little amount at regular intervals, you should go for the SIP (Systematic Investment Plans) mode of investing.
Suggested Read: SIP vs Lump sum- Which is the Better Mode of Investing
However, professionals advise that you may consider investing in mutual funds when they are sold at a lower NAV (Net Asset Value) than at a higher price per unit. This will not only maximise your returns but will also help you in higher wealth accumulation. Additionally, you should consider investing when the markets have hit rock-bottom, as in such circumstances the shares can be bought at a much lower price. If you invest in mutual funds at a time when the market has entered a bearish phase, chances are that your funds will deliver higher returns in the medium term. However, if you are sure of investing in mutual funds, you should not wait for the “best time to invest” as in most situations, it won’t come or waiting may mean you lose out.
Also, it is important to note that investing in mutual funds is different from investing in stocks. Investments in stocks require investors to track the market and trade constantly, whereas investments in mutual funds do not require continuous tracking. In mutual funds, the cost of trading is also spread over all mutual fund investors, which ultimately reduces the overall cost per investor. Additionally, meticulous monitoring of the fund’s performance is not necessary.
Things to be Considered before you Start Investing in Mutual Funds
Mutual Fund investments vary from individual to individual depending upon their current financial situation and future financial objectives. Some individuals may invest in mutual funds to gather a corpus for their child’s higher education or for their child’s wedding, while others may choose to invest to safeguard their retirement. Owing to these factors, you must decide to invest in mutual funds only after you have thoroughly considered the following for your own self-
- Risk Appetite– The amount of risk that you can manage to afford with your investments is a huge factor to be considered. For example, if you are young and new to mutual fund investments, you should begin with investing in debt mutual funds as they involve lesser risk. On the other hand, if you have a higher risk appetite, equity mutual funds should be your choice.
- Investment Horizon– The time period for which you can lock in your funds is another important factor that you must consider when investing in mutual funds. For example, if you are in your early 30s or so, and wish to invest for your retirement, you may invest in long term equity funds that will help you stick to the fund and gain from the returns in the long run.
- Tax Saving– If you are an employee working with an organization, tax saving would most likely be an important thing to do. To get rid of the huge sum of tax liability, you may choose to invest in mutual funds such as ELSS (Equity Linked Saving Schemes) that will help you save up to Rs.1.5 Lakh per year under Section 80C of the Income Tax Act.
- Return on Investment– Before you decide to invest in mutual funds, you should be aware of the fact that the returns generated on investments in mutual funds are directly linked to the amount of risk that you wish to take. Higher the risk involved in a fund, higher will be the chances of gaining from remarkable returns.
- Fund Performance-Before investing all your savings in a mutual fund, it is important that you are sure of the performance of the fund you are investing in. While selecting the fund, it is necessary that you check the fund’s last 3 to 5 year trailing returns, its NAV (Net Asset Value) and AUM (Assets Under Management) that explain the total size of the fund and give an idea of the number of investors of the given fund. It is important to ensure that the fund has maintained consistency over a long period of time.
Also Read: Best Mutual Funds for Beginners to Invest in 2020
How to Invest in Mutual Funds
You can invest in mutual funds through either of the following ways-
- Offline mode of investing– If you are not confident of your knowledge, you may choose to invest through a broker. However, investing in a fund through a broker will make you eligible for investments through regular plans that offer different returns and varied expenses in investment. If you wish to invest in the fund independently, you must visit the nearest branch of the AMC of your fund. Don’t forget to carry the following documents-
- Identity Proof (Aadhar Card)
- Canceled cheque
- Passport size photos (around 4-5)
- PAN Card
- KYC documents (for KYC verification)
- Online mode of investing– If you do not wish to add on to your expense of commissions or brokerage, you may visit online investment platforms such as Paisabazaar.com wherein you can choose from and compare more than 1,700 funds- all in one place, instead of following the long procedure of visiting the website of each AMC and then choosing from them. Here, you can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment