Mutual funds can help you achieve what your salary cannot. They offer growth against inflation, the prospects of multiplying your money by manifolds, financial security in your non-working years, and a chance at a better and improved lifestyle. They also offer flexible methods of investment like a systematic investment plan (SIP) or a lump sum contribution, making them ideal for varied financial goals and risk appetites. As ideal as they sound, there are some things to consider before investing in mutual funds to ensure maximum returns. Read on to know more.
Things to consider before buying mutual funds
Here are some things to keep in mind:
- Understand the different types of mutual funds: There are different types of mutual funds like equity funds, debt funds, hybrid funds, balanced funds, etc. Each of these funds offers varying levels of risk and are suitable for distinct goals. For instance, equity funds carry high risk and are suitable for investors with a long time horizon as they primarily invest in the stock market. Conversely, hybrid funds invest in equity and debt as well as other instruments, so they offer a better balance of risk and return and can suit investors with a lower risk appetite. Make sure to understand the nature of each mutual fund and then decide on investments based on your requirements.
- Pick mutual funds based on your time horizon: The time horizon determines your investments to a large extent. The longer the time horizon, the higher risk you can take. Similarly, the shorter the time horizon, the less risk is advised. If you are investing for a goal like retirement and have a long time horizon ahead of you, you can easily include mutual funds that are on the riskier side. However, if you are investing with the goal of accumulating funds for a child’s college due in 3 years, it might be better to stick to medium to low-risk options.
- Select the right mode of investment: You can invest in mutual funds in different methods like in a lump sum or through SIP installments. Choose a method that you feel comfortable with, so that you do not end up missing your contributions. Similarly, you can invest in mutual funds through brokers, directly with the asset management company (AMC), or through online investment platforms. The broker may charge you an inflated fee as compared to the other two. Investing directly with the AMC may result in lower costs. Lastly, an online investment platform may or may not charge a small commission but can surely simplify the process and help you with the paperwork.
To sum it up
Mutual funds are an invaluable asset in everyone’s investment portfolio in today’s world, where inflation is through the roof, and financial responsibilities are increasing by the day. They can offer you growth and security and, at the same time, give you peace of mind. But there are some things to consider before investing in mutual funds, so that you are able to earn better returns. Try investment apps like the moneyfy app and start investing in mutual funds.
