A Guide to Investing in Mutual Funds in India 2022

As a new investor, selecting a mutual fund that suits your financial profile goals can be time- consuming and confusing. This blog offers a quick guide to buying mutual funds in India in 2020.

For most amateur investors who don't know how the stock market works, Mutual Funds (MF) offer a defensive investment path. Instead of investing directly in stocks, a financial expert or fund manager chooses the stocks for you. Being a low-cost, tax-saving, and simple investment tool, mutual funds can prove to be an ideal low-risk investment option.

If you are looking to invest in Mutual Funds, here is a quick guide to get you started:

Stage 1: Selecting a Mutual Fund

• Know Your Requirements:

  Since every mutual fund has different objectives, you must select the one that matches your financial goals and risk profile. To achieve this, you must analyse your short-term and long- term financial goals and the risk you are willing to take to accomplish them.

• Know Your Mutual Fund:

  Once you are aware of your financial goals, the next is to analyse and understand the mutual funds. A quick look at the fund's history will give you an idea about its past performance. Analyse the financial ratios and the average return on investment over the last couple of years while considering different funds. It is always wise to keep a diversified portfolio of mutual funds for reaching your financial goals.

• Know Your Fund Manager:

  Unlike the stock market, where you choose the stocks, a fund manager ultimately decides the stocks to put your invested capital in Mutual Funds. Therefore, you must check the fund manager’s performance and the fund management house before choosing the mutual fund scheme. Furthermore, ensure that the mutual fund firm is credible and has earned consistent returns on the investment. Since every fund manager charges a fee for managing the portfolios, evaluate the fee aspect before choosing a mutual fund.

Stage 2: Buying a Mutual Fund

Now that you are aware of different factors to consider, here is the list of steps to get you started while buying a mutual fund online:

• Step 1: Get your Paperwork Done:

  The first step to investing in mutual funds is to open your bank account and become Know Your Customer (KYC) compliant. KYC is a one-time government regulation process for performing financial transactions. To become KYC compliant, you will need to have the below documents:

  1. Valid Address Proof

  2. Valid Identity Proof

  3. PAN Card

  4. Recent Photograph

• Step 2: Select the funds:

  After getting the paperwork done, the next step is to select the mutual funds that meet your requirements. To select, consider factors like the risk involved, tenure, return on investment, etc. as mentioned above in Stage 1.

• Step 3: Buy Mutual Funds:

  After choosing the mutual funds of your choice, the next step is to buy them. For online mutual fund purchase, you can either buy funds directly from the fund management house or invest indirectly through an intermediary. Additionally, you can either go for a lump-sum purchase or invest periodically through a Systematic Investment Plan (SIP).

• Step 4: Monitor Your Mutual Funds:

  After investing in mutual funds, you should ensure that you track their performance. You can go to the fund house’s website to evaluate its performance or read news and articles of financial experts regarding the mutual fund.

• Step 5: Sell the Mutual Funds:

  Knowing when to sell your investments is as crucial as selecting which mutual funds to buy. You know it's time to sell a mutual fund if you have achieved your financial goals, or if the mutual fund continues to fare poorly for a while. It is wise to consult a financial advisor before selling your holdings in mutual funds.

Mutual Funds, if invested correctly, offer a simple yet effective investment tool for meeting your financial goals. Understanding your short-term and long-term financial goals and selecting a mutual fund to accomplish them requires knowledge and patience. You can consider the steps mentioned above to get a brief idea about buying mutual funds in India in 2020.