A detailed guide from opening an account to selecting the best mutual funds for yourself
Investing in a mutual fund (MF) scheme might sound easy but deciding the same requires a lot of planning and effort. Since the market is full of various plans from several financial institutions and each of them trying their level best to attract investors, not everything out there seems to meet the expectations as advertised. Also, with the lack of proper knowledge, especially the beginners may face a loss even if the chances of making a profit is fair enough. So, basically, it is not about knowing the best mutual fund scheme but deciding which one is apt for you. Before you go with the flow, know about mutual fund is and how it works-
What is Mutual Fund
A mutual fund is a type of investment which is professionally managed to generate a pool of money from the investors with an aim to purchase securities, bonds, etc. In other words, a mutual fund allows a large number of investors to put some with a common objective of investment. The accumulated money is then invested in bonds, equities and securities and the generated income gets distributed proportionately among all the investors.
Knowing what a mutual fund is before investing in the same would help you refrain from the negative approaches. Source: Franklin Templeton
If you want to choose the best mutual fund for your investment, all you will need to know the procedure it involves for an account opening. However, you need to keep a few things in mind-
Select between active and passive account: An actively managed MF scheme involves the professional who would manage the fund on the basis of proper research along with an aim to beat the market. On the other hand, a passively managed fund involves a more hands-off approach. While active funds can be expensive and difficult to take care of, passive accounts are easier and may deliver better results.
Plan your budget: This is the most important step you need to take. Planning a budget as well as a loss appetite would be better for you to start.
Understand fees: Alongside investment planning, you must know about the fees and charges in investment. These fees are charged by the company annually for the management of funds.
A portfolio is important: Building and managing a portfolio is very important. Also, build a balance in the portfolio once every year to keep it in line with the plan of expansion.
How to open an account?
- Visit the website of the investment company and select the ‘invest online’ option.
- Download the application form, fill up the personal details along with additional requirements and enclose a cheque or DD for your investment amount.
- You will also be required to enclose KYC, ID proof, address proof, PAN, etc.
- After that, send all the requirements to the address specified on the application.
- You shall receive the MF receipt once the application is reviewed by the team and post allotment of MF units.
- You shall then receive a Personal Identification Number (PIN), which is used for future transactions.
Decide where to open a mutual fund account
Another important thing is how to select the best mutual fund to invest in. Since there are various things to keep in mind while finalizing the best mutual fund scheme, you can simply follow a few tips and advice that will help you to come across the finest one.
Know your goals and risk tolerance
In order to get the best mutual fund plan, you must consider what your goal is. Is it to invest in a long-term capital gain or you simply think that the current income is more suitable? In addition to that, you must also set your risk tolerance.
One of the primary aims for the growth fund is capital appreciation. If you want to decide to go for long-term investment and have the ability to handle risk and unpredictable changes, it would be better to go for a long-term capital appreciation fund. Although the funds come with some risks, it will allow you batter gains and returns over a long period.
Mind the fees and loads
Almost all mutual fund companies levy fees for fund management. In fact, most of the companies make a major portion of the income only by charging fees from investors. Generally, there is a front-end fee load which needs to be paid out of the initial investment and a back-end load fee which is charged when you sell your shares.
Know the past results
While you come across a suitable investment plan that seems to be the best mutual fund scheme, you must run your eyes through the past performance of the same. For doing so, you should remember mainly three questions-
- Did the fund manager deliver optimum results?
- Was the fund volatile?
- Was there a high turnover, which would impose tax liabilities on the investors?
Other than these points, know the size of the fund that suits you best. You can click to read more in order to get the best mutual fund plans for you.