Mutual funds are a modern investment option that caters to the needs of many sorts of investors. This market-linked device comes in various shapes and sizes and is known for its high return producing capability. Regardless of your financial goals, including at least one fund in your portfolio can help you achieve the desired investment results.
If you’re a first-time investor, it’s good to learn a few pointers before getting started. Let’s start by knowing more about Mutual Funds and then move on to a part that will assist you in making a successful investment.
5 things youngsters need to know about mutual fund investments
Identify your purpose: This is the first step toward becoming a mutual fund investor. You must establish your investment objectives, including purchasing a home, paying for a child’s school, planning a wedding, retiring, and so on. If you don’t have a clear objective in mind, you need at least to know how much money you want to amass and in how long time. Identifying an investment goal aids the investor in narrowing down investment possibilities based on risk level, payment method, lock-in duration, and other factors.
Invest before you spend: Investing the money left over after costs is a proven way to wind up with no savings. Before you pay, start by automating your investment allocation. Saving at least 15-30% of your after-tax salary is preferable, but you can start with as little as Rs1,000 each month if that’s not possible.
Make a detailed budget that includes saving, investing, and spending, and stick to it. Avoid credit cards and purchase now pay later (BNPL) plans because of their aggressive marketing and temptations.
Look for long-term investments: They do well when you hold mutual funds for 3-5 years or longer. Mutual fund returns can be volatile in the near term, especially on the equities side. However, if you give funds enough time, they will produce consistent returns. If your needs are short-term, you should only invest in short-term mutual funds, which implies you should stay away from equity funds.
The whole spectrum of items is available if your needs are long-term. All you have to do now is pick, choose, and invest. Millennials should be aware that short-term financial markets, where mutual funds invest, can fluctuate dramatically up and down. In the long run, such fluctuations are insignificant.
Prefer SIPs: Millennials can invest in mutual funds in two ways. It can be done in the lump-sum method, where you invest all of your money at once, effectively timing the market. The SIP option, which is more prevalent among small investors, allows you to invest your money weekly, monthly, or quarterly as desired.
The ideal way to invest is through a systematic investment plan (SIP), which allows you to buy at low and high market points. This also instils a feeling of discipline in young investors, allowing them to reach adulthood much sooner and better prepare for their investment goals. SIPs bring in over INR 8000 crore in monthly investment money in India. There are approximately 2.5 crore SIP accounts, indicating that a large number of investors are following this way of investing religiously.
Ignore peer pressure: The fear of missing out (FOMO) and societal pressure can lead people to invest in stocks based on suggestions or purchase alternative investments like cryptocurrencies without a solid foundation.
However, you could lose a lot of money if you invest in asset types like direct equity (stocks) and crypto-currencies, which have higher risks. If you must invest, keep it to a modest portion of your total investable money as a method to branch out from the core of a diversified mutual fund portfolio.
We constantly say, and we love to repeat it, that you should pick mutual funds depending on your financial plan, time available to reach those goals, and risk profile. If you need to meet your goals in three or four years, adhere to bank deposits and debt mutual funds. Consider investing in equities mutual funds if you have a long-term aim of five years or more.
Make sure, however, that the category you choose corresponds to your risk profile. Don’t take your risk profile for granted. Don’t take your risk profile for granted. To better determine your risk profile, take an online quiz.