How to start investing in a mutual fund?

Jun 21, 2019
I do not have any idea about finance and investments. Can you guide me how to start investing in a mutual fund?
1 Answer
Jun 22, 2019

Let me congratulate you ! You are thinking of finances and investment and  eager to know about it. You are also thinking of investing through right financial product i.e. Mutual fund !!

Mutual Fund is now familiar to most of the investors. Thanks to social media, TV, newspaper and magazines advertisements. Business channels’ financial literacy programs are also educating investor about the Mutual Funds benefits. People are interested in knowing the concept in detail. They are now eager to take well-informed financial decision to grow their wealth.

Mutual Funds are suitable to all types of investors having ultra short, short and long term horizon. Investor can invest in mutual fund by two ways. First one is Lump sum payment and other one is through SIP. Systematic Investment Plan is a great tool to invest in a staggered manner allowing investor to invest small amounts periodically i.e. weekly, monthly or quarterly. Investor can start investing in mutual fund through SIP by minimum of Rs. 500 only. Some scheme also have provision of monthly SIP of Rs.100.

Equity Mutual fund returns are market linked. It carries risk but in long run through SIP investment pattern this risk becomes calculated and almost manageable. SIP made in a good quality Large, Multi-cap funds and smaller portion in Mid and Small caps can generate returns ranging from 12 to 16% p.a. But considering ups and downs in equity market it is always prudent to be realistic and reasonable. SIP investments’ rate of return should be considered at 11% p.a.(overall portfolio return) for safer side if investment made through SIP.

Beginners should start investing cautiously. The general rule of investment is that, invest in those assets which you understand and whose process of investing is simple and hassle-free. Mutual fund is one such investment.

As per your age, you can allow 80% of your savings into equity and 20% in debt. Spread your investible surplus as follows

80% of the surplus should go to Equity through Mutual fund SIP. Build your equity portfolio based on Core and satellite approach. In this pattern, more proportion of money is invested in Large and Multi cap fund. The large-cap can generate 10 to 12% returns for SIP investments. These funds provide stability and minimize the downside risk of the market. The smaller portion is invested in good quality in Mid and Small Cap as satellite portfolio which has the potential to generate 15 to 18% returns. This can add a kick in overall portfolio returns.

The Best vehicle to invest in Mutual Fund is Systematic Investment Plan — SIP

Points to remember :

  • Fix your goal first and fix their time horizon.
  • Segregate them into short term and long term goals.
  • Choose Debt Mutual funds for Short term and Equity Mutual fund only when time horizon of a goal is or more than 7 years.
  • Then map each SIP in mutual fund with that particular goal.
  • There is never a good time to start SIP. Don't try to time the market and sit on the cash looking for right opportunity.
  • Give proper time to each chosen SIP to witness both bull and bear phase of share market.
  • Don't jump on conclusion to change chosen SIP of mutual fund in every 3/6 months.
  • More than focusing on the capacity of generating high return focus on managing downside risk management of the chosen SIP.
  • Always choose your mutual fund SIP based on Core and Satellite approach especially for Equity Mutual fund.
  • And very IMPORTANTLY never stop your SIP investment because of short term fluctuations in share market. Both bull and bear market cycles are important for the SIP to generate good returns in long run.
  • Patience and discipline in continuing investment is SIP is very important for reaping huge benefits out of SIP investments.
  • SIP provides benefit of Rupee Cost Averaging.
  • SIP keeps you worry free about the timing of the market.
  • SIP helps the investor to be disciplined in investing irrespective of mood of the market.
  • Equity Mutual fund SIP pays off only in LONG RUN.

SIP is the best vehicle to create LONG TERM WEALTH.

So start your SIP TODAY under good Financial Advisor !!

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