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 additional long-term expense?
Deciding your financial goals will define the type of MFs you invest in. Split your MF portfolio between low, moderate, and high-risk funds to achieve short-term and long-term goals.
Step 2# Don’t purely rely on NAV.
An MF’s NAV or Net Asset Value lets investors 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.
Choose a mixed bag containing funds with high and low NAVs if you want a balanced MF portfolio. If you want a balanced MF portfolio, choose a mixed bag containing funds with high and low NAVs. 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 portfolio return.
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 monthly and take advantage of high returns compounded annually. Not only is this instrument a safe bet, but you can also quickly liquidate it in an emergency.
Step 4# Take professional advice.
Conduct thorough research before investing rather than relying on click-bait news items and popular market opinions. Also, talking to a financial expert who can patiently take you through the different types of MFs to invest in is ideal. They will also help you build a robust investment strategy around MFs.
The bottom line
Have you finished your research, spoken to an expert, and are ready to invest in MFs and SIPs? You need the right financial services company to start your MF portfolio. You can turn to Tata Capital Moneyfy for all your investment needs.
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