5 Things To Know Before Your First Mutual Fund Investment
Key Insights
- Invest in mutual funds to earn profit returns as it can be a source of passive income.
- The mutual fund industry has increased its assets management market by 40.70%.
- Every mutual fund category has a different risk profile.
What do you do when you want to buy a car?
You conduct research, evaluate its features, and get as much information as possible before purchasing one.
The same approach should be used for your mutual fund investments.
Learning about mutual funds may seem intimidating at first, but it is necessary if you plan to invest in them.
While they help you save money for retirement, travel, and just about anything, knowing how to invest in mutual funds is important.
Here’s everything you need to know before investing in mutual funds.
Why mutual funds?
Understanding the features of mutual funds and how they work is essential if you plan to invest in them.
A pool of money is created and the funding is used as an investment, like stocks and bonds.
And of course, you receive income or returns annually depending on how well they perform.
Today, there are 20.45 crore mutual fund accounts in total.
Invest in mutual funds if its main objective is aligned with your financial goals.
So if you are planning to earn money within a year or two, investing in stock mutual funds may not be suitable for you.
Similarly, if you want to invest in your retirement fund, a bond fund is likely to meet your goals as they aren’t suitable for long-term investments.
Finding the right match will not only benefit you in the long run but also support immediate or temporary financial needs.
In addition, the assets managed by the mutual fund industry have increased by 40.70% in the last year.
The most common types of mutual funds
There are already a few ways you can invest in mutual funds.
You can look into different companies, specific locations, and even industries that spark interest within you.
With the help of a mutual fund investor, you can invest in mutual funds that are more rewarding than others as they understand market conditions.
So, how do you decide where to put your money?
To begin, first, find out the different options you have available.
1. Stock or equity funds
Stock funds essentially mean investing in corporate stocks.
While some stock funds focus on companies that pay via dividends, other companies look at the overall price and its potential for growth.
Factors to consider when investing in stock or equity funds include industry type and geographical location.
2. Debt funds
Debt funds have varied risk profiles.
While the ones offered by the government are relatively safer, you have high-paying funds that are equally risky.
You can earn money from debt funds via capital appreciation and interest. These funds are relatively less risky as they don’t fluctuate too drastically.
What you should do is read the terms and conditions thoroughly before investing in debt funds.
3. Hybrid funds
Hybrid, as the word suggests, is a combination of debt and equity funds, making it a more attractive option.
It gives you the ability to diversify your mutual fund portfolio and also allocate assets more strategically.
You can benefit from long-term capital appreciation and maintain short-term stability via debt funds.
5 things you should know about mutual funds
Here are 5 considerations before you invest in mutual funds.
1. They can help you make money
Mutual funds are a good way of making some income.
They do so by investing in securities on your behalf.
But the thing is, the amount of money you make is dependent on the worth of securities you hold.
This income that we speak of is paid to you in the form of dividends or interest.
Appreciation, on the other hand, is distributed amongst investors via capital gains or losses.
2. You don’t get the same returns every year
The amount you earn from mutual funds is paid to you on an annual basis.
This might confuse some investors and make them believe that they will receive the same amount every year.
But that’s not true.
It’s important to remember that profit return on mutual funds is not linear.
So, in one year, you could earn +10%, whereas in the next year, you could earn -2%.
3. Direct plans give higher returns
Now you have direct plans and regular plans.
And both are just plans for the same mutual fund scheme.
The only difference is that you have no broker or agent in direct plans.
This means, there’s no commission or broker fee, reducing the overall cost.
Because of this reason, direct plans are more profitable than regular plans, where you do have an agent in action.
4. There’s a mutual fund for every risk appetite
Every mutual fund type involves different levels of risk.
So, you can divide them into high-risk and low-risk categories.
Before you decide to invest in a mutual fund, make sure you know how much risk tolerance you have and whether or not you want to look into other options.
5. You can take a loan against your mutual funds
The beauty of mutual funds is that you can get a loan against them without having to liquidate your investment.
It helps you secure funds to manage short-term financial crunches without abandoning your long-term financial plans.
With 50Fin, you can get a loan against your mutual funds approved within 7 minutes.
The entire process is online and you get the loan amount disbursed into your bank account within 4 business hours.
And yes, there are zero foreclosure charges, so you don’t have to worry about hidden or unexpected costs.
The bottom line
Investing in mutual funds may be the best financial decision you’ll ever make.
While its profit return is variable, they do become a passive income and a long-term investment.
You can even take a loan against your mutual funds without liquidating your investment.
For this, 50Fin can be your one-stop solution.
By making the process completely digital, we have made mutual fund loans quick and efficient.
Sign up now and get your loan approved today!
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