Start with equity mutual fund
Don’t enter into mutual funds to make quick money, start with largecap or multicap funds, seek professional help if you are not confident
MUMBAI: Wondering what are mutual funds and how to start investing in it?
To begin with, there are more than 30 types of mutual fund schemes in the market. According to the Securities and Exchange Board of India (Sebi), mutual funds can be broadly categorised into equity, debt, hybrid, solution-oriented and others. If you have not yet started investing in mutual funds or have just ventured into it, here are the things you should know:
FIRST-TIME INVESTOR
If you are a first-time investor in mutual funds, remember, you are not here for the short term. It is almost impossible to time the stock market and earn quick gains from investments. Don’t enter into mutual funds to make quick money. “If you are venturing into this asset class, you should not be worried about timing the market. How the market is expected to perform today or tomorrow should not be a priority for a first-time investor,” said Ashwin Patni, fund manager and head-products, Axis Asset Management Co. Ltd. “Whenever the equity markets become jittery, people start pulling out of it. This is the only asset class that can beat inflation and create wealth over a long period of time,” said Deepak Gupta, equity fund manager at Kotak Mahindra Asset Management Co. Ltd.
START WITH LARGE-CAP
Those who have just entered the work force can start with equity mutual funds. As a thumb rule, you can connect your equity allocation with age. For example, if you are 30 years old, your equity allocation can be 70% (100-30) of your annual savings. “But this is not all pervasive as final equity allocation depends on a host of other factors,” said Gupta.
As a first-time investor, you should look at broader categories such as largecap or multi-cap funds, said Patni. Avoid other complicated equity mutual funds till you get a grip on the asset class. “Only investors with high risk tolerance should invest in mid-cap, small-cap, thematic and sector funds,” said Harsha Upadhyaya, chief investment officer-equity and Kotak Mutual Fund. The guide to choose the right fund house is to look at its investment philosophy and performance in all market situations. “It is important to assess how the fund house performs when the market is falling,” said Patni, adding that a sustainable long term strategy is a must for an ideal fund house.
SEEK HELP
If you find the process of picking the right scheme challenging, take profes-
SHOULD I DO AN SIP?
Systematic investment plan or SIP allows you to buy mutual funds on a re- curring basis. For instance, say you want to invest ͈1,000 every month. You should opt for SIP. It works well will for salaried individuals who have a regular monthly income.
SHOULD I DO A LUMPSUM?
You can invest in mutual funds in lumpsum. It works well for those who don’t have a regular income. Also for those who want to put aside money for investment that comes in the form of bonus or incentive. sional help from a financial planner. You also need to diversify, but that doesn’t mean you should buy too many mutual funds. “Mutual funds are a good way to get exposed to equities. However, the risks of stock markets are reflected in equity schemes too. Diversification reduces the risk element,” said Upad-
HOW TO START INVESTING?
To invest in mutual funds, you need to complete your KYC process, for which you will have to provide your identity and address proofs. You can invest
online as well as offline. hyaya.
On an average, you should not have more than five-seven mutual funds in your portfolio.
THOSE WHO HAVE JUST ENTERED THE WORK FORCE CAN START WITH EQUITY MUTUAL FUNDS. YOU CAN CONNECT YOUR EQUITY ALLOCATION WITH AGE. FOR EXAMPLE, IF YOU ARE 30 , YOUR EQUITY ALLOCATION CAN BE 70% (10030) OF YOUR ANNUAL SAVINGS If you are wondering how to start investing, here is what you should know: