Over the years, Mutual Funds have evolved to become a household name in investments. A Mutual Fund, as the name suggests, collects funds from investors with similar financial goals and invests them in a portfolio of assets with a clear and defined investment objective. With hundreds of Mutual Fund Schemes and several types of mutual fund schemes in India, a new investor can find the process a little overwhelming. In today’s article, we will offer eight quick tips to help you invest in Mutual Funds for good returns
1. Prepare Well
Any successful investment has weeks of preparation (if not more) behind it. As a new investor, seeking the advice of a financial advisor is a good idea. However, if you want to learn and invest yourself, then start by asking yourself some pertinent questions like:
What are my financial goals? Do I want to save for a comfortable retirement? Or, do I just want a cushion of a strong corpus behind me? Also, how long do I want to invest for – 5/10/15 years?
Think about the answers well as they will determine the choice of investments you make.
2. Assess your Risk Preference
All investments have some element of risk associated with them. Assess how much risk you are willing to take. A general mantra of investments is: higher risks=higher returns. Therefore, it is important to have a clear idea about your risk tolerance in advance.
3. Understand the different types of Mutual Funds Schemes
Mutual Fund schemes are usually divided based on the asset class, investing style, objectives, etc. Ensure that you understand these basics well as the knowledge will help you find suitable mutual fund schemes to invest in.
4. Determine the optimum Asset Allocation
Asset allocation is how you want to divide your investments between various asset classes like real estate, shares, bonds, etc. It is a product of your financial goals, risk preference, and investment horizon.
5. Start selecting schemes
Now that you have the asset allocation in place, start looking for schemes which can help you achieve your investment objectives. There are many factors that you need to consider before choosing a theme like performance, expense ratio, fund managers, etc. Remember to keep your goals and risk tolerance in mind while selecting the schemes.
6. Create a Mutual Fund Portfolio
A Mutual Fund Portfolio helps you monitor and manage your investments easily and efficiently. Diversify well and create a portfolio that works towards your financial goals.
7. Know the tax laws
Tax can eat into your returns. Therefore, it is important to know how much tax you will be liable for when you redeem your investments. Also, some investments offer tax benefits (like Equity Linked Savings Scheme). Ensure that you learn about the tax implications before investing.
8. Take financial advice if necessary
While investing can be exciting and fun, it is important to seek assistance if you feel that you are guessing more than analyzing. Talking to a financial advisor can always help.