Why Invest in Mutual Funds?
When considering investing, one should first create an
emergency fund that will take care of your expenses for at least six months.
Then you need to have health and life insurance before you start your first investment.
Usually, most of us invest whatever is surplus after spending. Instead, we
should first try to decide on our investment amount and then spend whatever is
left. This will help us limit their discretionary spending. It works for those
who have just started earning or want to start their investment journey.
To start your investment, you should analyze your goals i.e.
long-term and short-term goals. The time horizon of your short-term goals can
be from one week to one year while long-term goals can be 5 or 10 or 20 years.
What is a Mutual Fund?
Mutual fund is an investment medium where multiple investors
pool their money to earn a return on their capital over a period. This corpus of
funds is managed by an investment professional known as a fund manager or
portfolio manager. Its job is to invest the fund in various securities like
bonds, stocks, gold and other assets and provide potential returns. The profit
(or loss) on the investment is shared collectively by the investors in
proportion to their contribution to the fund.
Mutual funds are an excellent option for investors to invest
their savings. There are many benefits of investing through mutual funds as
mutual funds have professional fund managers who manage the money, this means
that the fund is heavily regulated by the Securities and Exchange Board of
India (SEBI), which means a negligible chance of fraud. Most mutual fund
schemes are open-ended funds, which means you can withdraw money whenever you
need it.
Mutual funds provide funds to meet every goal. The asset
allocation (equity, debt, gold) is based on your goals.
The amount of risk you can take in your portfolio depends on
your goals, time frame and your willingness to accept volatility. Low-risk
investors happy with stable returns without much volatility should opt
for debt funds. On the other hand, equities may be more beneficial for
investors who are risk-averse and have far-reaching goals. Investors need to
consider all these factors before starting to invest.
While investing through mutual funds, keep in mind the long
term. Due to compounding, longer tenure provides maximum growth in your
investment. Track your investments and the external environment, which may impact your investments.
Investing through mutual fund SIP establishes financial discipline. Investors will keep that money aside on the date of SIP. If you
don't have SIP and money is lying in your bank deposit, there is always an urge
to spend it on buying something.
Do's and Don'ts for a First-Time Investor:
Don't think of mutual funds as a miracle that will create
wealth for you. Continuing the investment journey for the long term requires
patience and discipline. No one has ever been able to predict the behaviour of
the markets, and it is pointless to spend their energy on it. Don't panic about
adverse market conditions and stop or withdraw your investments. SIPs in equity
mutual funds take advantage of market corrections, and it is important to keep
your investments going during volatile markets.
By- PANKAJ KUMAR GUPTA
Mannat Financial
Solutions
Nivesh.com
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