Mutual Fund Tips For The Newbie Investor

It is the natural desire of many to live a financially self-sufficient life. For achieving this goal people invest in different investment tools like a mutual fund. If you are inexperienced to invest in it, this article offers you some useful tips.

Over the past years, mutual funds have surfaced as the popular investment choice for people who are keen to grow their savings and build up a retirement corpus. One of the important reasons for its popularity is the flexibility feature it provides to the investors. You can invest in mutual funds with a minimum as INR 500 per month and remain invested for as long as wish. While mutual funds investment is an appealing scheme, a lot of beginners find it intimidating because they do not have any understanding about it.

Most inexperienced investors consider that all mutual funds are alike. However, this is untrue. The mutual funds are divided into different types like debt, equities and hybrid funds, and each of these types again have sub-types. Due to the variety that mutual funds offer; it can be complicated for beginners to decide on the right fund. If you are a newbie, consider the following advice –

Investment objective

Mutual funds offer flexible options as you can start investing with as little as INR 500. Besides, certain mutual funds schemes like the Equity-Linked Savings Scheme (ELSS), you can invest and cash in your investment at any time you want. It offers you the freedom to pick the right type of mutual fund scheme based on your financial goal. For example, if you are keen to stay invested for long time and get tax benefits on your income, you can invest your money in ELSS. If you are interested in a short-term investment scheme with a low-risk profile and get higher returns, than investing in debt fund would be ideal.

Know the risks

Every mutual fund has a specific amount of risk involved. Understand the rule of thumb that the equity funds, especially the small and mid-cap funds, will always have the highest risk factor, but they are also high in rewards. The debt funds, instead, are relatively low-risk funds and are low in returns. Subject to your risk-taking capability, you can invest in either of these two funds.

Diversify

Many financial experts advise that the best way to benefit from mutual funds is to have a diverse investment portfolio. What this means that you should avoid investing all your money in a single fund and ensure that you invest small amounts in different instruments so that you have a balanced portfolio and still get valuable returns.

Review the portfolio

One of the common mistakes that new investors do is that they overlook reviewing the performance of their investments. A periodic review lets you know precisely which type of funds are doing well in the market and which funds are underperforming. Once you know about the performance, you can think about restructuring of the funds and invest more in the high-performing funds and increase the earnings.

Mutual funds by no means make you in rich in matter of time. If you want to be a successful investor, you must have a strong knowledge of the market as well as a well-planned investment strategy. Go ahead, make a wise choice, and invest through online through mobile banking apps or offline.

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