We have already seen the different types of Mutual Funds ; but why invest in MFs?
Most mutual fund companies manage different types of funds such as money market, debt, equity etc. and allow you to switch between them with little or no charge. This flexibility allows you to change your portfolio to balance it as per your finance needs and market changes
You can even look at tax savings through ELSS (Equity Linked Savings Scheme), an open-ended Equity Mutual Fund which qualifies for tax exemptions under Section 80c of the Indian Income Tax Act
Mutual Fund managers are usually qualified and experienced in handling assets, stock market, asset allocation etc. These managers work with a team that analyzes performances across companies and are best equipped to manage these investments.
Steps to keep in mind while investing in mutual funds are:
Also known as asset allocation, your portfolio should be healthy mix of high risk and low risk components. A good practice could be allocating funds to low risk debt components equal to your current age. The younger you are the more you can invest in equities.
Choosing the fund and tenure
Shortlisting and finalizing the right funds is the next step. Proper research should be done regarding asset allocation that best meet your needs. Compare them on basis of past performances. You can do such checks online. Also check for the profile of the fund managers.
The more the money you need, the higher the risk you need to be ok with
Time limits for funds are either Open ended or close ended. Open ended mutual funds do not have a fixed maturity date and allow investors to buy or sell units at any point in time. Close ended mutual funds have a stipulated maturity period and investors can only invest during an initial launch period called NFO (New Fund Offer) period.
After careful selection, the next step is to fill up the forms, documents and submit it online. Make the payment for the investment.
Keeping track of the funds is important even if experienced fund managers are doing it for you. Go through newsletters, financial newspapers etc. You can also download smartphone apps to keep track of the funds.