Simple steps of Mutual Funds
How to Invest in Mutual Funds
¨ Mutual Fund
Mutual fund is the way to invest your money in stock market, bonds, Government securities etc.
Every mutual fund has one fund manager who looks after your money and invests in appropriate sectors fields etc. No
need for you to manage or worry about your money, it will be taken care by mutual funds manager. Mutual fund is
calculated in terms of NAV or unit price.
Investing types of Mutual Funds
¨ Open ended
In this method you can subscribe/buy mutual fund anytime during the year. Anytime you can buy and sell your units.
There is no lock in for your money.
¨ Closed ended
These types of funds are available only during certain period of time, not through out the year like open ended. And if you
invest/subscribe for this type of mutual fund then your fund will get locked for that particular period.
You can sell or redeem your units only after your lock in period completes.
¨ SIP (Systematic Investment Plan)
If the mutual fund, have SIP investment method they you can prefer this. In this method you have to invest in equal
monthly installment.
For example - If you want to invest 12000 per year, then you can plan to invest 1000/month. In this type of investment you
get two benefits, one is installment means instead of paying full amount you can pay in installment and second one is if
your mutual fund is related to equity market then you may get advantage of purchasing NAV when markets go down.
Mutual Funds Returns
Following are the reasons, why today most of the people choose mutual fund as the best investment method.
¨ Your money is managed by professional funds manager
Every mutual fund has a fund manager, who will be responsible for your money management, time to time he monitors the
performance of your mutual fund and if requires he do changes in the portfolio of mutual fund, so its like invest and forget.
But better to keep an eye on quarterly basis not even on monthly basis.
¨ Reduced risk
Mutual funds invest money in various stocks instead of single stock, if you choose equity link mutual fund. Even if you
choose any other mutual fund they will invest in various sectors, fields, Government securities funds etc. So your risk is
reduced and you can get higher returns. If you see past records of any top mutual fund, then minimum at least 12% to
15% returns they had declared, which is very good return as compared to any bank returns.
¨ Liquidity
Investors can buy and sell their mutual fund units any time, especially in open ended mutual funds.
¨ Affordability (cheaper to buy)
There is no compulsion for amount to invest in mutual fund; you can start investing from Rs.500. Investing in mutual fund
becomes easy for every one due to smaller amount.
¨ Convenient (easy to buy)
Now days most of the Mutual fund are offering online facilitiy. So you can view and monitor NAV’s, charges, mutual fund
plans, redeem units etc. using online facility by sitting at home or at internet café.
¨ Flexibility and variety
You have lots of varieties of Mutual fund and brand names. You can choose to invest in any sector you like, any field, any
investment pattern you like so investing in mutual fund is very flexible.
¨ Tax benefits
Very important is you get income tax benefits by investing in tax saving mutual fund and also 100% income tax exemption
on all mutual fund dividends.
Best Mutual Fund analysis
After all it’s your hard earned money, so think twice and consider following points before selecting your mutual fund,
¨ Profile of mutual fund
Understand where the mutual fund is going to invest your money. It’s very important to know the investment sectors and
fields where mutual fund is going to put your money.
¨ Don’t put all money in single mutual fund
Don’t ever try to put invest all your money in single mutual fund and also in mutual fund which are sector specific.
Because if something gives wrong with that fund then all your money will be in trouble and also if something happen to
that sector then also your money is in trouble.
So invest/put your money in such mutual fund, who is investing in diversified sectors/fields/shares etc. You can also plan
like one mutual fund of diversified equity plan, second mutual fund of balanced type and third one you can plan of debt
type etc. In this manner your money will get diversified, risk is reduced and you may get excellent profit.
¨ Find the right fund
- Look for past returns, dividend etc. the mutual fund has declared.
- Look for brand name of mutual funds like Franklin Templeton, HDFC, Reliance etc. to see more
your money will be on safer side.
- See how big is the mutual fund like market capitalization, turnover etc. Good if the mutual fund has large market
capitalization.
- If you have chosen equity or stock market related mutual fund, then you may go for SIP (Systematic Investment Plan)
method.
- Customer services (Its one of the important point) - The mutual fund company should be easily contacted i.e. you should
be able to easily contact the mutual fund company or its executive, how quickly they respond to your questions or your
fund related problems etc.
Compare Mutual Funds
¨ Diversified equity mutual funds
In this mutual fund type the money is invested in various selected shares of the stock market. It reduced the risk of
investing in single stock.
¨ Index mutual funds
This type of mutual fund gets invested in indices or index like sensex, nifty etc. This type of mutual fund has high risk and
high returns.
¨ Mid cap funds
All investment is done in various selected shares of medium scale industries. According to mutual fund mid cap stocks
have faster growth rate.
¨ Sector funds
In this mutual fund, money is invested in selected shares of specific sectors like auto, IT, pharmaceutical, FMGC etc.
Investment in this type of mutual fund is avoided as your money is invested in only specific sector.
¨ Tax saving mutual funds
Here your money may be invested in equity market, bonds etc. You get income tax benefit by investing in their type of
mutual fund.
Top companies mutual fund schemes
You may select following top mutual fund companies which are having good market
capital and name.
¨ ABN Ambro
¨ Birla mutual fund
¨ Fidelity Mutual Fund
¨ Franklin Templeton Mutual Fund
¨ HDFC
¨ ICICI
¨ JP Morgan
¨ SBI
¨ Sundaram
¨ UTI
¨ Reliance
Following is the summarization to brief you about the risk involved and returns you may get by investing
in particular type of mutual funds.
| Mutual Fund | Type of Mutual funds | Benefits you get from | |
| Low | Only in Debt | Bank/ Company FD, Debt | Liquidity, Better Post-Tax |
| Medium | Partly in Debt | Mix of shares and Fixed | Liquidity, Better Post-Tax |
| High | Only in Equity | Capital Market, Equity | Diversification, Expertise |
Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes are believed to be accurate and correctly dated, but DayTradingShares.com does not warrant or guarantee their accuracy or date.
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¨ NAV
It is the total asset value per unit of the fund and it calculated by Mutual Fund Company (also called as Asset Management
Company) at the end of every business. In other word NAV is the value/price of a single unit of your mutual fund.
For example, if the unit price or NAV of XYZ mutual fund is Rs.10 and if you invest Rs 500 then you will get 50 units of that
mutual fund.
¨ Charges
Generally Mutual fund charges one time fees in terms of entry load and exit load to compensate the expenses occurs for
maintaining mutual fund.
Entry load - Fees charged while purchasing/subscribing mutual fund.
Exit load - Fees charged while exit/selling your mutual fund.
The amount of entry and exit charges totally depends on Mutual Fund Company. Even some mutual funds don’t charge these
loads/charges.
Individual's Rules for investing in mutual funds
Investing is a quite a complex exercise. But when it comes to the basic principles, they are amazingly simple. Anyone can become good investor and reach your goals just by following those simple and easy rules. Here is the list of few rules for making investment in mutual funds:
Be a long-term investor:
You should have a long term horizon. Short-term trading will make brokers rich and not investors and the income tax department will also be happy. Mutual funds are diversified and therefore, their gains and losses are likely to be lower than what it would be in case you are investing in an individual security. However, major fluctuations are highly uncommon in mutual funds. So what make sense is to leave your capital in a mutual fund for a long time and let it compound. So the key point is Buy and Hold. It also requires to you do a reality check on yourselves so that you can define your goals and priorities before entering the market.
Start Early:
When you invest in the market is more important than the market timing. Always enter the market with long term thinking. Do proper researches before investing set your priorities and goals, ascertain your risk profile. Also very importantly you should keep yourself abreast with the daily market news. One should not do impulsive purchase allowing emotions overpowering the sense of reason.
Know yourself and then What You Are Buying:
The first step towards achieving your goals would be to know yourself, your risk appetite and accordingly make the investments. Once you have discovered yourself, explore the market and find out the kind of funds available in the market. Firstly, get a hang on the style and strategy followed by a fund by reading the available material. This will help in diversifying the portfolio and also in assessing potential risks. In general, large-cap value funds are less risky than small-cap growth funds.
Be A Disciplined Investor:
Once you've chosen some funds, you may stick with them. It is not necessary that one should always go with the tide. Even the unpopular groups tend to outperform in subsequent years. Investing a regular amount of money at regular intervals may add a good value to your portfolio. Make a systematic investment plan which in all probability likely to offer reasonable returns.
Know How Much You Pay:
There is one famous saying that Money saved is money earned. So it's always better to pay less than it is to pay more. Expenses are very important with your larger-cap, lower-risk funds, and less critical with small-cap funds and other higher-risk categories. You can afford to be lenient with the expense of a small-cap or a sector equity fund. Actually, the strength of the mutual fund lies in its simplicity. Don't follow the bandwagon.
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