In layman’s term, Mutual Funds investment is an instrument that is funded by a stakeholder and trades in a diversified portfolio. These are usually professionally managed and are considered as a safe investment option. In case you are a new investor or have limited funds at your disposal, you must definitely look at Mutual Funds investment as your potential choice. A well-crafted online mutual fund investment, for instance, at IndiaBulls, allows diversification; saves time; and if managed properly, can beat the market as well.
What are the various types of mutual funds?
There is more to just having a diversified portfolio alongside aiming to earn good mutual fund returns. Before you park your funds, you need to know and understand the different kinds of Mutual Fund Schemes available. Let us look at some of the types of mutual funds, as enlisted below.
Short Term Investment: Debt Funds
In case you are looking for a fund that can be converted into cash instantly, Liquid Funds are for you. ‘Instantly’ here means within one or two days. These funds can be associated with low risk and come with interest rates that are higher than those offered by savings accounts. If you are looking for mutual funds investment that is a safe bet for a period of 3-6 months, then Ultra Short Term Funds is the best option for you. This fund, too, can be associated with low risks.
Medium Term Investment: Balanced Funds
These types of mutual funds are also known as Hybrid Funds. In case you are interested in equities, this is one of the best mutual funds to invest in. The company invests your funds in both, debt and equity. However, you must know that the time duration to be looked at in this case is 2-3 years.
Long Term Investment
a) Multi-cap Funds
For beginners, Multi-cap Funds are convenient. They are suitable for periods over 4 years and are extremely flexible. The risk here can be spread over and managed easily by the funds manager. However, these mutual funds plans are slightly more risky when compared to Large Cap Funds.
b) Equity Funds
Here, maximum investable funds are invested in the stock market. The risk associated with these funds is high as they are affected by the ups and downs of the market. Therefore, people who are in a position to take risks in online investment must go for Equity Funds.
While considering an online investment on mutual funds, you can also opt for Target Date Mutual Funds. This mutual fund scheme is a mix of stocks, bonds and cash. They are suitable as a long term investment option. The manager can reduce the risk of investment by shifting assets from stocks to cash or bonds, as the target date arrives.
What factors should a new-bee take into consideration while choosing to buy mutual funds?
It is important to understand the differences because there is no one fund, that is solely made just for you. It is dependent on what you as a potential investor is looking for. Blindly investing in the Market’s top funds is not a good choice at all. That is not how you should make a mutual fund investment decision. Make sure that you are clear when it comes to why you are investing, for how long do you wish to invest and how open are you to taking risks. You must also take note of all the advantages of investing in mutual funds.
These are some important elements to be considered before you settle for an online mutual fund investment.
Fees and charges can make or break your mutual fund investment plan. When investing in a Mutual Fund, do look at charges like expense ratio and exit load (if any).
Understand what is the purpose behind your investment. Do you simply want to double your investment or do you want to generate a consistent flow of income? There are different funds that serve different purposes so be sure to clearly state yours.
How long do you want to invest for? This is an extremely crucial question. People usually go for long term investment when they choose from amongst the best mutual funds to invest. But again, it will not be right to generalize, as there are funds that are liquid and can be converted back in two to three days. Be sure about what your time horizon is.
With Mutual Funds, it will be right to look at the past performance. Do not go for Mutual Funds plans that underperform. This will help you understand how the fund reacts in both, bullish and bearish market scenarios and how vulnerable it is to market fluctuations.
It is not only important to hand over your funds to the Fund Manager but it is also very important to have a relationship with him or her. Since they will be parking your cash, it is important to understand where they stand and what their motives are. Understand how have they been performing and then make an informed decision.
Be practical and rational. Understand what your income is and choose a mutual fund scheme that is in line with your cash flows. It is best to be realistic and gradually increase your investment than to be irrational and stop investing all together.
Hence, even though Mutual Fund is seen as a safe investment instrument, it can prove to be counter productive if the fund is chosen without considering these factors. Be prudent and informed. Make sure you know what you want. Once you are certain that you have answered and considered all the factors mentioned above, go ahead and choose your Fund. Confused about how to buy mutual funds online?
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.