How to Plan your MF investments ahead of time 

Mutual funds are some of the most popular investment avenues among investors, whether seasoned or novice. The flexibility it provides to the investors and easy process increases its reach to a wide section of society. Whether lump sum or SIP, multiple modes, and multiple schemes might put investors in a dilemma. What’s the hack to begin mutual funds investment then? Read this guide to plan your mutual fund investments ahead of time.

What are Mutual Funds?

A mutual fund is a pool of money contributed by various investors to further invest in a specified class of underlying assets and securities like equity, debt, bonds, gold, index, etc. The fund is professionally managed by a fund manager who makes all the fund-related decisions.

Steps to invest in Mutual Funds

Below is the step-by-step guide to investing in a mutual fund:

  • Decide Your Goals: Before beginning your investment journey, you need to determine your goals of investing. Whether it’s for retirement, higher education, marriage or buying a house, etc. Your investment decisions and time horizon will depend on your goals. Mutual funds best reap benefits in the long-term horizon due to compounding. That’s why experts always recommend starting early. For goal fixing, you can use a mutual fund calculator or SIP Planner.
  • Select a plan: Depending upon your goals and risk appetite, you will need to select a plan that best suits your needs. If you are risk-averse, then you can prefer large-cap mutual funds that primarily invest in blue-chip companies. For risk-bearers, small-cap is the option. If you want to invest passive income, then you can select dividend-yielding funds or debt funds. Various options are available. Therefore, to make things easy, focus on your goals and risk appetite while selecting your fund.
  • Determine the mode of investment: After selection of the plan, you have two modes for investing in the funds, i.e.:
  • Lumpsum Investment: This is the one-time investment in your selected plan. Investors with excess funds directly invest a lump sum amount in a specified plan.
  • Systematic Investment Plan: Also known as SIP, an investor invests a predetermined amount regularly over a while. A specified amount is directly deducted from the investor’s bank account and invested in a selected plan each month. This gives the benefit of rupee cost averaging to the investor. SIP planner can be helpful to forecast your returns and help you meet your goals.
  • Start Investing: After deciding upon the above aspects, you can start investing in mutual funds. Investments can be done in two ways:
  • Regular investment: Here, the investment is made through a mutual fund agent or distributor. Even though the process is taken care of by such an agent or distributor, it increases the investment cost for the investor in the form of commission payouts which decreases the returns.
  • Direct Investment: Here, you can invest in the fund directly through the AMC without going through a broker or distributor. This can save you commission costs and increase your returns manifold when compounded over the term of mutual funds.

Some Features of Mutual Funds

Below are some features of mutual funds that every investor should know:

  • Tax Deduction: Tax saver mutual funds and Equity Linked Mutual Funds are eligible for deduction under Section 80C of the Income Tax Act, 1961. The maximum amount of deduction that can be claimed in a Financial Year is Rs. 1,50,000.
  • SIP Insured: SIP comes with two variants, i.e., SIP Regular and SIP Insured. While SIP Regular is the normal SIP, SIP insured comes with insurance protection for the investor. The sum insured is usually between 80 to 120 times the SIP amount. This insurance benefit gets triggered on fulfillment of some minimal conditions.
  • Expense Ratio: The expense ratio is the total amount of expenses to manage and administer the funds. Lower the expense ratio, the higher the returns for the investor.

Conclusion

Mutual funds have remained a preferred choice among investors, especially for novice investors who do not possess sufficient knowledge for stock market investing. Investors reap the benefit of the expertise of fund managers, and SIP investments further nullify the effect of stock market fluctuations. That is why SIP is preferred over lump sum investments. If you are willing to start your mutual fund investments, then SIP is an excellent choice. The best time is to start now!