Ultimate Mutual Fund Investment Guide for Beginners

2. Identify the risk level of investor. This would help to find and invest in right mutual funds, suitable to the risk profile.

3. Mutual fund is a product designed to investors from any income limit. Mutual fund investment can started with investing very small amounts systematically in every month or quarter.

4. Mutual fund offering investing through various methods such as Direct with the fund office, mutual fund agents and using the DMAT account. Investors thus can choose their convenient options to invest in funds.

5. Invest using Systematic Investment Plan (SIP) method. SIP investing method is the most advisable method to invest in mutual fund. It has great advantage of Dollar Cost Averaging (DCA) in a fluctuating market.

6. Study well about the funds and its specialties before taking any investment decision. Mutual fund world is so vast with different types of funds available to invest.

Having good knowledge about the mutual funds from each category and sectors would help the investor to take right decision to invest proportionally.

7. Investor must know the structure of the fund . There are funds which are open-ended, closed-ended or Interval fund ( In an interval fund, the units can be purchased in a particular duration only and when the fund is open or re-open for such purchases)

8. Mutual funds are classified for investment strategy of the investors. One can invest on various types of funds such as, Growth Fund, Liquid Fund, Tax-Saver Fund, Capital Protection, Fixed Maturity, Pension Fund etc.

9. Investors must know that each funds has its associated risks. Funds are categorized with High, Medium, Low and very low risks.

Investors must be able to identify and define the nature of such funds and investment suitability to them as per their goals. Also, it is mandatory to know where those funds are investing the money.

For example, funds with High Risk depends on equity markets, Medium Risk funds are either from debt or Large-cap equity fund category. Very Low risk funds are generally from the Liquid/debt/FMP fund category. Learn about this.

10. Understand that the NAV (Net Asset Value) of the fund is the price of each unit of the fund. Investing on low NAV fund is not a good idea as higher NAV of a fund shows it is performing well.

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11. Mutual fund investor must research about the fund performance for at least lat 5 years to understand the performance and investing suitability.

12. However, past or present performance of any mutual fund is not a guarantee for its future performance. Investor must monitor the fund to confirm the the fund is performing well.

However, mutual funds performance are totally depends on the equity market or the benchmark associated to the fund. The best way to identify the fund performance is to compare with the benchmark, at least once in six months.

13. When investing to a fund, identify the options to avoid agent commission. Directly applying to a fund would help on this.

14. Investor must know the entry and exit loads associated to the fund and the duration to get waiver from the exit load.

15. Comparing performance of the fund with its peers from other fund houses would help to select the best fund in the category.

16. Mutual funds are meant for long term perspective. Especially, investing in equity related fund for short time would negatively impact the profit. If prefer to invest for short time, prefer liquid funds, which offer capital protection as well as liquidity.

Liquid funds are best option for people who are retired or near to retire. It is also a perfect choice for those who are willing to build an emergency fund for rainy days.

17. Request to get the Key Information Memorandum (KIM) of  mutual fund and read before investing. it is the key for the investor to identify all about the fund including its past and present performance against its benchmark.

18. Mutual funds have certain objectives. An investor must understand the objectives clearly. For example, mid cap funds are best to invest for the future of kids. Liquid funds are  best for parking money for short time. Blue-chip funds would invest only on best Blue-chip companies and thus the return will be less but the risk will be low.

19. Identifying the fund allocation method is important. This means, whether a fund is investing totally on equities or a part in equities and rest in other instruments etc. Especially, when investing in multi-cap funds, ensure the investment proportion in Large-cap, Mid-cap, Small-cap equities.

20. Find out the major focus of a fund. It may be Large-cap, Mid-cap or Small-cap, multi-cap, sector, thematic, diversified etc.

Each fund has its own profit potential as well as risks associated with it. An investor must know all of these types. A good mutual fund advisor can advise better on this.

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21. Mutual find investor should take enough care during creation of a mutual fund portfolio. Depends on the goals, funds must be selected from various segments and in a good proportion to achieve each goals.

For example, investing in multiple liquid, debt or gilt funds for the kids education in the future will not fetch the required results. But, investing in a variety of funds from equity segments such as Mid-cap, Small-cap and Large-cap would do.

22. Performance of the fund house really matters.

For an example, I am reluctant to invest on any funds that is managing by government entities in India. Private fund houses have better focus due to the high competition in the industry where government entities would not give such seriousness. It is my personal opinion.

23. Fund manager and his decisions would impact the performance of fund to a great extend. Investors must study about the fund manager and his performance.

Checking details such as the performance of other funds managing by the same fund manager give an idea on this.

However, investors cannot expect the same performance to his fund. So, investor must monitor the fund time to time to ensure the performance is in expected level.

24. Identify the growth potential of the sectors the fund is focusing too. This is majorly applicable for sector funds, but the investment portfolio of fund can tell the weightage of the sectors were the fund invested.

For example, If a fund gives weightage to a sector that is not performing well or not expected to perform for further years too, better switch the fund to a better performing fund from other category or sector.

25. Fund houses that are NOT investor friendly, must be avoided. Investors have options to approach other offices of the same fund house in other area. If the treatment is same in the second office too, better avoid them and find a good fund house.

26. Avoid funds with weak past performances. The best way to identify such non-performing funds are checking its AUM (Asset Under Management). Comparing with its peers, AUM of non-performing funds were very low. Avoid such funds.

27. Never jump to New Fund Offers (NFO). This is one of the big mistakes beginner investors commits. New fund offers are good, but the performance is not measurable.

However, check similar funds from other fund houses and is in market at present. If all the funds performing well, then investors can invest a small amount to that fund.

It is better to invest in established funds than new funds, but keep an eye on such funds and once found it is performing, then opt to invest in it.

28. Never invest to mutual funds upon advise from others. It may be friend or an agent, do your homework to understand investing potentiality of a fund before investing.

29. Performance of a fund can be easily identified by comparing its performance with its benchmark as well as peers fro different fund management companies. If the fund is an under performer against both, better avoid it.

30. Never put all your eggs in single market. Always diversify mutual fund investments with mix of funds.

For example, equity fund segment have option to select funds focused to Large-cap, Mid-cap, Small-cap. Diversified, Multi-cap, sector funds, thematic, Micro-cap etc.

In the same way, debt oriented funds also have various segments to select and invest.

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31. Always have a mix of debt and equity funds. Depends on the risk profile and investment goals of investor, it is advisable to choose funds from different segments to build perfect investment portfolio.

32. Always ensure to provide nominee details whenever applying for a mutual fund. It is also required to update the investor details as per Know Your Investors (KYI) norms. Any changes in the bank accounts must be updated with the fund houses.

33. If you do not want regular income, always prefer to select the ‘Growth option’ instead of Dividend option. Monthly income schemes meant to people are in their requirement or near to retirement. Even dividend re-investment option also not suitable for young investors.

34. Be a patient and disciplined investor. These are the most important qualities every mutual fund investor should have.

Major Benefits of Investing in Mutual Funds:

There are various benefits on investing in Mutual Funds.

1. One of the major benefits is, Mutual fund doesn’t required a fixed investment, it is suitable for investors with any level of income and can start investing with small amount.

2. Mutual fund offers good returns against the investments.

3. Investors are personally not required to manage and monitor the fund actively. Each mutual funds have a dedicated fund manager to take investment decisions on behalf of investors of that fund.

4. Investing in mutual fund can be done conveniently and through several ways as informed in Point 4 above.

5. Mutual fund provides an excellent opportunity to diversify investors capital to a great extend.This would help investors to protect their investments from capital erosion risks.

6. Some of the funds, such as Tax-saving funds, are suitable for investors to claim tax exemptions, but depends on the Government Policy in the place.

Conclusion:

Mutual funds are the products to invest online as well as offline. With a Dmat account, investors can purchase the fund online. By visiting the fund office or branch and filling the required forms, they can invest in offline too.

It is a product offering singe time investment as well as systematic investments (SIP) with minimum subscription amount.

Equity investments are not meant for short time. Mutual fund world is vast with variety of funds created to fulfill various requirements of the investors. Investors have options to select funds to invest for a week or for 50 years depends on their requirements.

Depends on the goal and risk taking capacity, investors must select the funds carefully and monitor the performance time to time. This is the secret behind every successful mutual fund investors.

Hope you have got every information you were looking for. If any further information required on anything or an explanation or example to any of the points mentioned above, feel free to let me know by commenting to the below box. A reply to your comment is certain.