Investing In Mutual Funds: 3 Tips You Must Always Remember

Despite the challenges posed by the pandemic and the recession, the mutual fund industry continues to grow with millions of Indians choosing it as the preferred investment option.Moreover, thousands and lakhs of new and first-time investors choose mutual fund as the preferred tool each month. Undoubtedly, mutual funds have proven to be the best investment options for millions.

1. With the help of SIPs, you can start investing in a mutual fund of your choice with a capital of as low as Rs 500.
2. Mutual funds are less riskier in comparison to stock trading.
3. Mutual fund investments are highly liquid.
4. Mutual funds allow professional management of your money.
5. Some types of mutual funds, such as ELSS funds, come with taxation benefits.

• Tax Savings
• Building a retirement fund
• Planning for child’s higher education
• Planning to buy a home
• Planning for a big expense, such as a wedding, vacation, etc.

• Equity fund: These usually contain high to medium risk funds where major asset allocation is in equities and related instruments.
• Debt fund: These are usually medium to low risk funds where the majority of the funds is allocated to debts, bonds, and such instruments.
• Hybrid Funds: These funds distribute the asset allocation between equity and debt and usually carry high to medium level risk.

• How will you invest - SIP Vs Lumpsum - SIP is generally better especially for new investors as it allows you to start building a portfolio with a small capital and comes with other benefits such as Rupee Cost Averaging and more.
• How would you like to get returns-Growth Vs Dividend Options: You can either choose to get the returns in the form of periodical dividends or choose to re-invest the same in the growth option and get the benefit of compounded returns. Growth option is better suited if you wish to meet a financial goal, whereas the dividend option is for those who have reached or are near their goal.

1. Work Backwards Always: Many investors choose a mutual fund without strategising. This can prove to be detrimental. Before you start selecting the funds, always remember the end goal you wish to meet. Some of the common goals investors usually have are:
2. Knowing your goal will help you understand the financial amount you wish to generate from your investment and a deadline. This, along with your current age and financial health and liabilities, will further help you understand your risk appetite, a key consideration when investing in mutual funds . Most funds can be categorised as high risk, medium risk, or low risk.
3. High Return Potential = High Risk: While mutual funds don't come with any guarantees, a rule of thumb that almost always applies is that higher the return potential, higher the risk. Thuswhen selecting a fund, always keep your end goal and your risk appetite in mind. While there are many types of mutual funds, you can broadly categorise all of them into 3 types based on investment strategy and asset allocation.
4. When selecting the right type fo fund always consider your risk appetite, the end goal, and investment duration. While equity funds are generally suited better for meeting long-term goals, debt funds or hybrid funds are usually advised to investors with low-risk appetite.
5. Selecting the Right Investment Strategy: When building your investment strategy, you need to keep two things in mind.

While these are the 3 main mutual fund investment tips , it is always better to always seek professional advice, especially if you are new to this. Reach out to a professional AMC that can not only help you design your portfolio but give you 360-degree solutions related to your finances.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.