A mutual fund can be compared to a vehicle that collects money from different people and then invests the money in various securities such as stocks, bonds, other assets etc. The combined earnings that the fund owns are known as a portfolio. The shares owned by the investors in the funds represent the part of their holding.
Mutual funds are an easy way to invest your money in stocks and government securities. Most people think that they do not need any professional help for the management of such investments, but that is not true. It is not only about selecting the right stocks, but one has to be very alert as there are many complications involved with it.
The first thing that you should know about how to invest in mutual funds in India is the categorization of the mutual funds. They are categorized into 2 forms:
- Close-ended– where the funds have fixed maturity and money cannot be withdrawn before the maturity period.
- Open-ended– where the money can be withdrawn at any point in time.
Further, we need to understand the types of mutual funds that are available that include:
- Money market
- Hybrid or balanced
Secondly, you must know about asset allocation, which means the division of your funds between different classes of assets to get the desired return. Asset allocation is a healthy mix of high and low-risk components.
Lastly, compare and shortlist different types of Mutual funds on the basis of their experience and investment philosophy. Shareholders’ reports and prospectus must be referred.
Before knowing about how to invest in mutual funds in India, the thing that needs to be identified is your financial needs. Decide in advance the need for your investment either— it can be either a substitute income, or a retirement plan, or saving for some future events such as marriage. After you decide that, you can have a clear idea of the Degree of risk that is to be taken. Generally, there are high risks for short-term goals & low risks for long-term goals. There are companies such as Quantum who guide you completely throughout this process.