A starter kit to Mutual funds

Want to invest in Mutual Funds, but don’t know where to begin? At some point in life we are advised by someone to invest in Mutual funds but as a beginner we don’t really know how to begin! We are clueless how to start the process. The famous mutual fund “sahi hai” is the talk of the town and almost every wealth planner is advising to start your SIP (systematic Investment Plan) however you’re still unsure. Before investing in mutual funds understanding what are the benefits is the first step towards investing in it!!

Start Small:

It is always advisable that if you want to embark on the mutual funds journey; start small and start with an SIP. There are funds where you can invest as small as Rs 500 a month and start to look at your funds grow. It is not very hard today to find a fund which allows such small SIP’s, you can check online or you can also seek out a wealth planner. Websites like money control can give you the details of all the possible funds i.e. debt, equity, balanced etc.

Choose a balanced path:

Starting with Balanced Funds is the safest option as we don’t know which way to go, being a beginner this will help you get exposure to both Debt and Equity. It is important that you understand aspect about debt and equity funds. Debt funds since are more secured (have charge against an asset mostly and can be sold if company doesn’t pay back invested fund) therefore comes with lower rate of interest. On the other hand, equity funds come with much higher risk and therefore higher returns. So the thumb rule is, higher the risk, higher the rate of returns and vice versa. For starters you can always choose a fund which has an element of both, debt and equity.

Keep a track:

Though SIPs are the best way to invest in the Mutual Funds market, it is important you keep a track of the funds’ performance and if they are growing at the rates you were hoping for. We all should accept that the funds do not necessarily give instant returns, therefore staying invested for a longer time does ensure you get the returns expected. However at the same time keep a track of the funds’ performance, if they are not performing atleast at the same levels of market then exit and find the fund that does, and better is beating the average market performance.

Invest more over time:

By starting small, you can take baby steps and adjust your investment plan according to your comfort, this lowers risk. However if you want to make serious money, then you need to increase the investments over time. Therefore start small with Rs 500, then eventually and as your earnings go up, increase the amount. People do often make a mistake that when the markets fall, they panic and stop their investments and even withdraw the funds. Not only there are tax implications if you withdraw in the short term, you also lose out on the advantages of averaging. It means when you are buying constantly, whether the markets are high or low, you will always manage an average price which in the long run gives the highest returns. People who try to spot the best time to enter and exit the markets; will always complain on missing the best time to do so. Hence a regular investment would avoid such an issue.

Diversify your portfolio:

As you get more comfortable with investing in MFs, slowly increase your exposure to different kinds of Funds over time. Don’t just rely on the debt funds, or the equity funds or the balances funds, you’ll need to make sure that the portfolio has all of them in appropriate percentages depending on your risk appetite. The very famous investor Warren Buffet says that don’t put all your eggs in one basket, this is exactly what diversification is all about!

So to summarise mutual funds are truly “sahi hai” and with little support and bit of a read one should be able to invest in the markets quite comfortably. However if you want to really benefit and make good money then connect with a Certified Financial Planner (CFP) today to get the best and right advise.