Everyday Money: How to Invest in Mutual Funds
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Mutual funds are a convenient and low-cost way of investing to achieve your financial goals. These are an appropriate investment vehicle for those who want to invest in the stock market but lack the expertise to do so.
Here is how you can start the journey of your mutual fund investments.
What’s The Right Amount?
Investing in mutual funds via Systematic Investment Plan (SIP) starts with as little as INR 500. SIPs are an ideal investment vehicle for those who shy away from investing thinking that they don’t have enough money to invest. SIPs let you invest a fixed amount at a fixed frequency, which can be weekly, monthly or quarterly, just like recurring deposit (RD).
Moreover, investing regularly through SIP is a better way compared to pumping a lump sum as former helps in rupee cost averaging.
Related Read: 3 Things to Know Before You Invest Through an SIP
Choosing a Fund
Mutual funds are an easy way of investing in the markets as the fund manager manages the portfolio of stocks and fixed income securities to invest in. However, the first step of picking the fund that is suitable to the investor’s needs has to be done by the investor himself. It can be an overwhelming task as there are over 2,500 mutual fund schemes under two broad categories—equity and debt. Equity funds are further categorised as small, mid, multi and large cap. So, how do you choose?
First, pick between equity and debt. If you have an appetite for risk and an investment horizon of over five years, equity funds are a suitable option. Since equity funds invest in shares, they have the potential to yield better returns. On the other hand, if you can’t stomach market movements or want to invest for the short-term of 2-3 years, debt funds are a better fit. Take note that given their low-risk feature, they offer steady but low returns.
A third option is that of hybrid funds that invest in a mix of equity and debt—60-75 per cent in equity and the rest in debt. Debt-oriented hybrid funds have more exposure to debt compared to equity.
Related Read: 3 Parameters of Choosing a Mutual Fund
Investing in mutual funds require some one-time document formalities. You should be KYC (know-your-customer) compliant and must have a bank account. However, you don’t need a demat account for investing in mutual funds.
If you have not registered for KYC, you can do so through e-KYC. Alternatively, online platforms that allow investing in mutual funds, like Zeroda, FundsIndia, ET Money, Paytm etc, let investors complete KYC online through a video in less than five minutes.You will also need to provide Aadhar, PAN, identity proof and address proof.