Mutual Funds For Beginners !!

If someone comes to me and says give me your money and i will double it in two years, i will just close the door.

Because
A. It is too good to be true otherwise all of us will be rich.
B. Everyday in news-paper some financial fraud is happening somewhere.

So how can i trust anyone with my money. There is no shortcut to be rich.You have to invest smartly with your hard earning money in proper way. Unfortunately most of us think why worry about investment in such a young age, but that is very wrong attitude. Starting early on investment will have lot of benefits.

Because
A. Time allows you to take risks
B. Compound interest really makes a difference
c. Your spending habits will improve
D. Time is working in your favour
E. Be a step ahead of everyone else
F. Retirement will be less scary for you
G. Your quality of life will improve

If you are not started any mutual fund today i am going to guide you as a beginner what are the key points we need to take care of and everything about mutual fund.

What is Mutual Fund and what are different types ?

Mutual Fund collect money from people like us, 500 rupees from me, 500 rupees from you and create a money pool and then a fund manager uses this pool to invest in stocks, bonds etc. We don’t have to worry about where it is invested because fund manager takes care of it for a commission of 1-2%. If you want to invest long-term mutual fund is a great option because instead of sitting ideal your money will go and earn for you.

So question comes how can i be sure mutual fund will not run away with my money ?

Mutual funds are regulated by SEBI(Securities and Exchange board of India), so running away is highly unlikely. However you selected a bad fund manager then he/she might invest in bad stocks so you could loose money. I will explain how to avoid these.

Types of mutual Fund ?

1. Equity Funds
These mutual funds invest in stocks, share of companies. They are considered high risk but gives high returns.

2. Debt Funds
These mutual funds invest in debt funds like Government Bonds, corporate debt securities, and money market instruments etc, They are safe mutual funds and returns are less also.

3. Hybrid Funds
These mutual funds as name says they invest in both stocks, equity as well as debt funds. These funds give you moderate returns with moderate risks.

Then there are sector funds, gilt funds etc are there, they are pretty easy to understand but lets focus on basic funds.

How to pick best mutual funds ?

There are so many mutual funds in market we need to consider couple of basic and important points before selecting any fund.

1. Long term investment
A. SIP(Systematic investment plan)
When you want to invest in systematic manner say 1000rs or 2000rs every month and every month this amount will be moved from your saving account to your mutual fund account. It is the best option if you are new to mutual fund.
B. Lumsum 
When you want to invest a big amount for a longer period of time

2. Short term investment
A. when you want to invest for shorter time period say 1-2 years of horizon then we should invest in debt fund as it is low in risk.

3. Mutual fund schemes types
A. Large Cap
These funds are invested in big companies which are already well established, so we have less risk with less return
B. Mid Cap
These funds are invested in moderate company with moderate return with moderate risk
C. Small Cap
These funds are invested in small company with high risk and high returns.

4. Some important points to consider
A. Expense ratio : How much fund manager charges to manage the fund, lower the expense ratio 1-2% or less is always a good fund to consider.
B. Entry and exit load charges
C. Returns of the fund each year (10years track record at-least)

Steps :
1. Select the mutual fund want to select.
2. PAN card, KYC compliant
3. Find out the SIP amount and what will be return etc.
Example: SIP calculator and Return calculator
4. You can open account online or can visit there branch, everything now a days is happening online, so it is very easy.
5. Always invest in direct mutual fund

What is the difference between a direct plan and regular plan in case of mutual fund investment? Which is better, especially if I am investing via SIP?

A Direct plan is what you buy directly from the mutual fund company (usually from their own website), whereas a Regular plan is what you buy through an advisor, broker or distributor (intermediary). In a regular plan, the mutual fund company pays commission to the intermediary. This is then recovered as an expense from the plan. In mutual fund speak, the expense ratio is higher for a regular plan.

DISCLAIMER : 

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund, or designing a portfolio that suits your needs.