Clueless about how to start investing in Mutual Funds? We’ve got you covered. Read on to learn the tricks of the trade.
It’s no secret that Mutual Funds are one of the best investment options to grow your wealth in the long term. However, many of us aren’t really open to the idea of investing our money in a Mutual Fund or two.
This rather hostile attitude towards Mutual Funds is partly because we, as humans, aren’t open to taking risks especially when it comes to our money. But that’s not all. Most of us are hesitant to invest in equities also because we’ve no idea how to go about it. Well, if you knew the basics of investing in Mutual Funds, you wouldn’t really be worried about the risks since you’ll have a fair idea on how to minimise/avoid them.
Additional Reading: 10 Benefits Of Investing In Mutual Funds
So, if you happen to be a bit clueless about how to start investing, then this article is for you. And if you aren’t interested in learning, you can visit bankbazaar.com and we’ll build the perfect portfolio for you for FREE.
How to start investing
Step 1: List your financial goals
We all have certain financial milestones to achieve, right? It could be short-term goals or long-term goals. Identifying and listing your goals will help you plan your investments better.
For instance, if one of your goals is to buy a car within the next three years, then it makes sense for you to invest in a debt Mutual Fund to meet this goal. Wondering why we suggested a debt instrument? It’s simple. Since it is a short-term goal, you cannot risk your money because you are short of time to counter any unexpected losses. Remember that Mutual Funds are dependent on markets and markets fluctuate constantly.
On the other hand, if your goal is to buy a house in the next 12 years, you can blindly invest in equities. Equities are the best wealth-creation instruments for long-term goals as they provide higher returns than other investment avenues.
Additional Reading: Types of Mutual Funds
Step 2: Discipline is important
When it comes to equities, discipline matters a lot especially when you’re investing for the long term. As mentioned before, markets aren’t steady; they are volatile. As a result, your investments will be affected by short-term or medium-term volatilities. History has shown that even great bull runs have been in panicky situations leading to losses for the investors. But these short bouts of reversed market sentiments shouldn’t affect you emotionally, clouding your judgments.
In short, patience and discipline make a huge difference in the long run.
Step 3: Diversify your portfolio
A broad portfolio covering various asset classes and investment instruments helps to minimise risk while allowing you to earn optimal returns. But, before you diversify your portfolio, you have to factor in your risk appetite and the time horizon for your financial goals.
Risk appetite
How much risk are you willing to take? With equities, there is always the risk of losses when the market is down. So, if you’re totally averse to risks, your portfolio should concentrate on debt instruments only. A moderate risk profile will see a 70:30 distribution across debt and equities. A person who is open to risks can put the majority of his investment in equities, especially in his/her younger days.
Age matters too when it comes to risk appetite. A 50-year old should invest more in debt instruments than equities while a 20-year old should invest more in equities since he/she has the advantage of time.
Additional Reading: Tips For Ideal Portfolio Diversification
Time horizon
How soon do you want to realise your goals? Set a time frame for each of your financial goals. It will help you decide how much you have to invest and in what instrument in order to achieve your goal.
It also helps to know the different schemes under debt and equity Mutual Funds too. This will help you choose schemes which are in line with your goal, time frame, and risk appetite.
Watch This: How Do I Analyze A Mutual Fund Before Investing?
Step 4: Hire an expert
If you’re new to the world of Mutual Funds or you still can’t understand Mutual Fund jargon, then making investment decisions on your own could cost you a lot. We suggest that you hire a seasoned Mutual Fund advisor. They will be able to address your queries, suggest schemes, keep a track of your investments, and help you buy or sell funds at the right time.
Try BankBazaar. All you have to do is enter a few personal details and BankBazaar experts will build a portfolio for you. You also get the option of making a lump sum investment or investing via SIPs. Plus, you can choose between Liquid Funds, ELSS funds, and equities. Interested? Then click the link below to start building wealth.