Things to Know Before Investing in Mutual Fund

Mutual Funds have emerged as a preferred investment option of many; especially after the marketing thrust of AMFI (Association of Mutual Funds in India) it generated sufficient curiosity with its humourous yet informative ad campaigns.

Mutual Funds provide the convenience of investing minus the hassle. They are managed by smart fund managers who are there to deliver great returns for their investors.

So let’s get started,

Why invest in Mutual Funds?

Mutual Funds not only offer diversification and hassle-free investments but also provide great returns. Better returns than all the traditional investment instruments like FD. Start with a goal in mind and the timeline you’d like to keep investing. This helps in choosing the right Mutual fund that will help achieve your financial goal.

Consider the Risk factor

Investment is a continuous process and requires steely determination. The risk in mutual funds is varied and there are mutual funds to suit every type of investor. High, Moderate, and Low risk but apart from that one must know that mutual funds are subject to market risks. It’s imperative that you select the fund according to your risk profile. High-risk funds can give great returns but they can go either way too.

Mutual Funds are diversified

The biggest USP of mutual funds is its ability to diversify. One mutual fund can hold multiple stocks spread across many sectors so diversification is inherent. It is, however, advisable to spread your investment in 3-4 types of funds or baskets. This should cover the diversification part.

Know different loads

There are some expenses associated with Mutual Funds. It’s helpful if they are known beforehand like,

Entry Load: These are fees charged at the time of purchasing the mutual funds

Exit Load: These are fees charged at the time of redeeming your investment from a mutual fund

Depending on the fund’s policy they may charge one type of expense or all or even none.

Past Performance – Future Performance

As with stocks, it’s the same with Mutual Funds. Performance history is no guarantee of future performance. It’s helpful to know how the fund has been doing but that does not mean it will perform the same in future. It may or it may not, depends on the market and the fund management team.