Mutual finds operate in a manner where funds from various sources are pooled together under the banner of an asset management company. Then the pooled money is invested in a diverse spectrum of securities .As an investor you make money in the form of dividends and capital appreciation. They can choose to invest the money in other options.
The reasons why you should invest in direct mutual fund
Convenience
To invest in mutual fund seems a convenient option. With limited paper work and less monitoring, exposure to broad market and a diverse range of investments is possible. The facility of portfolio balancing and switching funds helps to align your investment needs as per expectations.
Less investment
You do not need a huge sum of money to start investing in mutual funds and even Rs 500 would do. In this regard a systematic investment plan would do where you can cash in on the power of compounding.
Tax saving
Section 80 C outlines various mechanisms for tax saving and mutual funds appears to be one among them. For the last few years ELSS has become a popular investment option among the masses as it is has the shortest lock in period of a mere 3 years.
Fund management in a professional manner
In mutual fund management your fund is managed by a professional manager who has a dedicated research team. For asset allocation they formulate a strategy. They gain access to financial details and hence formulate an asset plan accordingly. They possess investment related skills that a real investor is going to lack.
Points to ponder if you are a first time investor
Outline an investment goal
Clearly formulate an investment goal based on budget, strategy and tenure could proceed a long way. This would enable you to clearly figure out the amount you need to set for a mutual fund and understand your risk appetite. An investment is better if there is a purpose behind it.
Understand the right type of mutual fund
It would be great if you could do a proper research about the various types of mutual funds before you arrive at a decision. For a first time investor a balanced fund portfolio is suggested which is a mixture of debt and equity related schemes. This gives you the highest returns at minimal degree of risk
Rather than lump sum payment opt for a systematic investment linked plan
For a beginner who is into equity based funds, rather than lump sum investment it is better to opt for Systematic investment plan. With the former you can reach a market peak within a short span of time whereas SIP allows you to spread your investment portfolio over a period of time.
If there is surplus fund at your end , opt for a systematic investment plan . In the midst of all this you cannot invest in mutual fund if you do not follow the KYC norms. For this you need to furnish your PAN details and an address proof.