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A person can invest in mutual funds with a monthly Systematic Investment Plan starting at as low as Rs 100 per month.
It is divided into three types: Equity, Debt and Hybrid Funds.
‘Mutual Funds Sahi Hai!’ You must’ve heard this slang on your TV or smartphone, encouraging people to start investing in their future with a minimal amount today. It is a popular option, especially for those who are afraid of investing directly in the stock market or who want to invest under the guidance of a professional team. Mutual funds are generally safer than the stock market, as they reduce risk and make diversified investments.
A person can invest in Mutual Funds with a monthly Systematic Investment Plan (SIP) starting at as low as Rs 100 per month, to create future wealth, retirement planning, children’s higher education or to invest in property etc. But, the most important question that arises before you start investing is how to choose the best mutual funds that may meet your investment objectives.
Mutual Funds are categorically divided into three types: Equity, Debt and Hybrid Funds:
Equity Funds: These are investment vehicles that primarily hold stocks or equities of publicly traded corporations. They gather funds from different investors to buy a diverse portfolio of stocks, with the purpose of generating long-term capital growth and returns.
Debt Funds: These are investment vehicles that collect funds from numerous investors and put them in debt instruments such as bonds, government securities, and other fixed-income assets.
Hybrid Funds: Hybrid mutual funds are investment vehicles that diversify by owning different asset classes, often a combination of stocks (equity) and bonds (fixed income) within a single fund.
Here’s a step-by-step guide for you to choose the best Mutual Fund. Take a look:
Define Your Financial Goals
Carefully define your investment goals, such as retirement planning, child education, marriage, and so on. This will assist you in selecting the right asset class mix and, as a result, suitable mutual fund schemes. Additionally, using a mutual fund SIP calculator can help you estimate prospective returns and manage your investments more effectively.
Risk Profile
Understanding the market fluctuations is an important factor while investing in Mutual funds. Equity funds carry more risk and have the potential for bigger returns, whereas debt funds have the possibility for returns.
Investment Horizon
The asset class you choose is also determined by the duration you plan to invest. Equity funds are best suited for long-term investments (five years or more), while debt funds may be considered for short-term investments.
Closely Evaluate Fund Performance
Closely monitoring and reading the performance of each mutual fund in the past is an important step in choosing the Best Mutual fund. Although the past success of a fund does not guarantee future returns, the idea of it promotes confidence in investors. Pro tip: Consider different return periods such as calendar years, rolling returns, and so on. Potential returns across various market conditions are a good sign, but they do not guarantee future success.
Analyse Fund Cost
Check out the mutual fund’s expense ratio. Lower charges can have a major impact on your overall results, therefore look for funds with low fees. Passive funds often have a lower cost of investment. Before investing, it is advised that one should contact their financial counsellor.
Taxation
Another important factor in choosing the right Mutual fund is understanding the taxation system of India. Long-term capital gains (LTCG) from equity mutual funds are taxed at 12.5 per cent if held for more than a year and exceed Rs. 1.25 lakh per year. Short-term capital gains (STCG), on the other hand, are taxed at 20 per cent if held for less than one year. Debt mutual funds are now taxed at the marginal tax rate, regardless of investment tenure.
Lump Sum or SIP
There are two ways to invest in Mutual funds- Lump Sum or SIP. The investor can put the entire amount for a one-time payment or else can choose a monthly payment process that will be debited from their respective bank accounts. Notably, by investing through SIPs you can benefit from rupee cost averaging and power of compounding.
Contact Fund Manager
It is important to contact a Fund Manager who can guide you and give you better investment ideas. Also, they can manage your funds by investing in a fund corpus.
Notably, begin your investment path with cautious planning, and enjoy the benefits of disciplined investment.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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Delhi, India, India
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