Mutual Fund investment are subject to market risk. Which is indeed true. However, the market is not at risk always and even if it is in risk, it will pretty soon be up again.
Just like life, with all the ups and downs, round and round.
In our previous lesson of the powerful beginners guide on Mutual Funds – 101, we learnt what Mutual Fund Investments are, how they are different from other investment schemes like FD’s, PPF, etc.
If you are looking to brush up on Mutual Funds basics to get a better idea, we’d like to recommend these links –
Now moving forward, let’s deep dive into How to invest in Mutual Funds.
‘Some Mutual Funds are open-ended, while other’s are close ended’
Buying a share in a Mutual Fund
It is like having a piece of pie, which means you invest by buying a part in a Mutual Fund. Which is fair enough to say you have a stake in a small part of all the investments in the fund. It is a simple way to have a diversified investment portfolio.
Because of which, it becomes an easy option for an individual who wants to invest, however, does not have the time to analyze and research the market options, or for those who are willing to diversify their portfolio.
To go Solo or Not
Yes, there are two ways to invest in mutual funds. First, you can directly visit the website of the mutual fund you are willing to invest in, based on your own research or on friends or family’s recommendation. This direct approach is referred to as “The Direct Plan of a Mutual Fund”
Second, is the Indirect method which involves you to hire a professional advisor for a nominal fee, (like a Broker for Stocks), usually called a Fund Manager or the Asset Management Company (AMC), depending on whom you connect with for the service and they take care of all the dealings around the investment, safeguarding your interest at all times.
If you decide to go with the Direct approach, you may have a lot to explore and learn. Extensive market research will be one thing which will keep you little busy , however once you have decided you can invest by directly visiting the AMC Website (official website) or through an App. Moreover, you will have to keep an eye on your investments by which ever way you do.
On the other hand, for Indirect method, with the professional help at your disposal you are saved from the hard work and for a little commission you pay, you get the ease to invest and get a diversified portfolio with the help of learnings of the professional.
If you plan to go with Direct Approach, we’d recommend Groww.in, an online app where you can safely invest in the Mutual funds, Stocks or Digital Gold as per your convenience and increase your savings.
** They have ZERO Account Charges.
You would need to complete your KYC (Know your Customer) and you can start investing, one benefit you will get with the online apps, is the less paperwork you will need to do or handle, you can see the current prices so you are always aware of what’s happening in the market, more importantly, you also get to see in-depth detail about the mutual fund, moreover, the research will be yours so invest wisely.
Managing your portfolio
Once you have decided which way to proceed with, you will need to create an account with a brokerage house providing Mutual Fund Distribution services, complete your KYC. Next, essential step is to create a Mutual Fund portfolio, which will involve short listing schemes with good performance history.
You should eye at keeping your portfolio healthy, by balancing it with both low risk and high risk elements. It is very important to diversify your investment. Keep comparing different mutual funds investment schemes, by observing their policies and past performance.
Some are open-ended mutual funds scheme, while others are close-ended.
The main difference between the two is with Open-Ended schemes, they do not trade on stock exchange and are priced at their portfolio’s Net Asset Value (NAV) at the end of each day.
So basically, open-ended fund is an investment that uses pooled assets, which in turn allows for ongoing new contributions and withdrawals from investors of the pools as per their needs and requirements.
On the contrary, close-ended mutual fund scheme is a an Equity or Fixed-income fund in which the fund house issues a fixed number of units at launch which is known as New Fund Offer (NFO). After the NFO period ends, investors cannot purchase or redeem units of a closed ended fund.
These funds are launched via an NFO and are traded subsequently in the market like stock and have a fixed maturity period. While the NAV of the fund determines the actual price, but the prices change as per the demand and supply of the units.
Simply put, a closed ended fund is launched and then closed until the maturity. This is to increase the power of freedom for the fund manager to pursue the investment objectives of the fund.
- Mutual Funds are assets that are collected and managed by AMCs.
- You can Solo riding with the help of the App/online portals or you can take help of mutual fund advisor.
- You should read between the lines when it comes to prospectus of the fund you are interested in, do your research as extensively as possible. Review past performances, keep in mind your financial aim with the investment.
- Making the investment is the first step, but there is still one more step required, which is to keep monitoring your portfolio and keep track of the performance of the funds in it. That is how you reduce the risk of losing your capital when tough times for the market kicks in, you will be aware to fly out sooner.