There are a lot of things you would be thinking about before you start investing in mutual funds. One of them is, “should I invest in mutual funds?”
The answer to that is a huge yes. You have to invest. Investing is one step ahead of just saving. While you have worked for the money you earn, investing lets that money work for you. But, obviously, there are so many things you would think about. We are prone to thinking about everything we do, especially if it involves our hard-earned money. Here are a few pointers that could be a great way for you to kick start this investment journey.
How Does Investing in Mutual Funds Work?
Mutual fund investment is when a trust pools money from different investors and uses that pooled money to invest in the stock market. Equities, bonds, and other financial assets are some examples of what a mutual fund invests in. It can be actively managed or passively managed. While it’s actively managed, it is managed by a fund manager who performs some market research that aligns with the portfolio’s objective. And in the case of passively managed funds, it replicates an index or a benchmark.
The goal of a mutual fund determines the type of security to be pooled for, and the focus of the fund is to generate long-term wealth for the investors. The investment would predominantly include stocks of huge corporations that constantly give reasonable returns every year. For the people who look forward to diversifying, mutual funds are a great way.
There are various kinds of mutual funds available in the market, and they could be tailored differently to match your needs. You could choose your funds based on financial goals and invest in funds that cater to specific needs.
But, before you start investing in a mutual fund, there are quite a lot of things that you have to consider. For instance, if you are thinking about investing in the Edelweiss mutual fund because your friend is doing so too, you are only investing in the fund out of a single Edelweiss mutual fund review. But, there is not just one factor you have to think about before you invest in a mutual fund. There are several. Here let’s talk about things you need to think about before you start investing in a fund.
5 Factors to Consider Before Investing in a Mutual Fund
There are a few things you have to think about before you can start investing. Here are some of the major aspects that need to come into your consideration Before Investing in Mutual funds.
1. Are you Risk Averse?
Mutual funds and rewards go hand in hand, but where there are high rewards there is also the place for risks. Risks are a by-product of your investment journey. This is a decision you need to make right at the beginning of your investment journey. If you are a beginner, then you wouldn’t know much about the market, and it’s best to find out more about your risk appetite. If you know how much you can lose in the process of investing, futuristically, you wouldn’t be facing a big burden. Along with that, there are high risk, moderate risk, and low-risk mutual funds. You can choose a mutual fund based on your preference, so you stay in the margins of your risks.
2. Know More About Fee and Charges
When you want to invest in mutual funds, there are fees and charges you need to know about. As you know, mutual funds are managed by fund managers and fund management companies. These companies will charge a little something, which you would be due. You will have to pay off your maintaining charges, commission, trading, and Demat account and a different fee for different platforms. You might want to make a comparative analysis of which fund house you want to choose for your investment procedure.
3. Take Researches Seriously
Now, research does not just mean you look up a few reviews and watch the past performance. It is more than that. You have to research the platform you choose to invest in, the fund manager, the statistics of the fund and so much more. This gives you a clear understanding of not only now but the possibility of the future too.
4. Know your Lock-In
The lock-in period, or how long you would want to be invested for is a big deal. This also requires you to know your goals really well. When you know your goals, you know how long you can be invested for. When you exit a few mutual funds before a year, you will also be charged an exit load. Which you have to be considered big time. If your goal is a house, you are in it for the long term, but if your goal is a bike, then it could be done within 3 years.
5. Invest what you can Afford
Do not go aboard or be overtaken by emotion. Just because the returns are high, you cannot invest what you can’t afford. Always invest what you have left from paying off your essentials. Also, when you are starting off, make sure you do not jump into borrowing and investing, which can also be called Margin trading because it could backfire at times you never know.
The thought of investing in mutual funds is a great way to start your journey with wealth creation. There are plenty of options available for you, and the challenge here is picking the right one for yourself.