How to invest in mutual funds?

Having a solid foundation is a must for being a successful mutual fund investor. Read on to find out how you should go about investing in mutual funds.

We have seen a lot of traction in mutual funds since the demonetisation and has elevated post the Covid-19 impact on the stock market. There were a lot of buyers seen in the international segment of the mutual funds as the technology companies in the US drives the indices higher. This, however, also gave birth to most of the Do It Yourself (DIY) investors with most of them carrying self-attribution bias.

And these so-called DIY investors base their investment decisions on the videos they watch on YouTube or doing self-research by simply analysing the mutual fund’s trailing returns and star rating. Moreover, they even don’t bother to understand the methodology of star ratings or rankings. This usually leads them towards anxiety during shaky times. Therefore, having a solid foundation is critical since it will allow you to make smarter investment decisions when markets turn sour.

Mutual funds are one of the finest strategies to establish a diverse portfolio that allows for long-term wealth building. Most retail investors would struggle to diversify by investing directly in stocks. Mutual funds are able to diversify across numerous stocks because they pool money. Here are a few ideas to get you started with mutual funds.

Determine investment objective

Determining why you are investing, matters even more than selecting mutual funds. Choosing mutual funds becomes easier if you have financial goals in place. Say, for instance, you have saved for the higher education of your two children. However, for the elder child, it is five years away, while for the younger one it is ten years away. Here, even though your financial goals are same (child’s higher education), you need to have separate portfolios for each child. This is because their investment horizon is different.

Select appropriate mutual funds

Understand that the term ‘best’ is quite subjective in mutual funds and hence we have mentioned ‘appropriate.’ As the investment goals of investors are different from one another and even the risk tolerance levels are different, the required fund to invest in might differ. Moreover, winners always rotate and hence, it is important to invest in a more consistent fund that suits your financial goals and risk profile, rather than best funds.

How to invest in mutual funds?

You need to submit a duly filled application form and a cheque or bank draft to the branch office or designated Investor Service Centres (ISC) of Mutual Funds or Registrar & Transfer Agents of the respective Mutual Funds. This is a full-fledged physical process of investing in mutual funds. You can also invest online via several websites that offer mutual fund services, and you can even visit the individual websites of the Mutual Fund Companies.

However, if you are seeking advice from an expert, then you can also invest via them. You can avail services of Mutual Fund Distributor (MFD) registered with the Association of Mutual Funds in India (AMFI) or an Investment Advisers (IA) registered with the Securities and Exchange Board of India (SEBI).