Mutual Funds or MFs have gained immense popularity with young investors. And, why not! This financial instrument offers significant returns, can be opened with limited funds, and provides diversification into different classes of assets.
If you are in your 20s or 30s with some disposable income, MFs are a great way to multiply it. You can choose a mixed bag of funds depending on your risk appetite. Want to invest but not sure where to start? Follow this step-by-step guide to investing in MFs the right way.
Step 1# Define your financial goals.
Why do you want to invest in MFs? Is it to make a quick buck and reinvest in other instruments? Or, do you see MFs as a way to fund your retirement, pay off your international tuition fee, or any other long-term expense.
Deciding your financial goals will define the type of MFs you invest in. To achieve both short-term and long-term goals, split your MF portfolio between low, moderate, and high-risk funds.
Step 2# Don’t purely rely on NAV.
An MF’s NAV or Net Asset Value allows investors to track a fund’s performance. The usual dictum here is an MF with a lower NAV has more scope to grow, while an MF with a higher NAV has a lower growth scope. But, this doesn’t mean you only choose MFs with a lower NAV.
MFs with higher NAVs might be more stable and not fluctuate much in value. So, in addition to the NAV parameter, you should also pay attention to other factors such as a fund’s past track record and the past portfolio return. If you want a balanced MF portfolio, choose a mixed bag that contains funds with both high and low NAVs.
Step 3# Start a Systematic Investment Plan
While investing a lump sum in mutual funds online is a great idea, you should also consider systematic investment plans. These let you invest in MFs with just a few thousand rupees. You can deposit money into a systematic investment plan every month and take advantage of high returns compounded annually. Not only is this instrument a safe bet, but you can also quickly liquidate it in case of an emergency.
Step 4# Take professional advice.
Rather than relying on click-bait news items and popular market opinions, conduct thorough research before investing. Also, it is ideal to talk to a financial expert who can patiently take you through the different types of MFs to invest in. They will also help you build a robust investment strategy around MFs.
The bottom line
Have you finished your research, speak to an expert, and are now ready to invest in MFs and SIPs? Well, then you need the right financial services company to start your MF portfolio. You can turn to Tata Capital Moneyfy for all your investment needs.
They provide a user-friendly online platform to compare and invest in MFs. You can also avail of their services on your smartphone by downloading the Moneyfy app.