Mutual funds investment in India used to be viewed with trepidation earlier. However, Indians have not only warmed up to this asset class but are embracing it and turning into evolved investors. Although the penetration of the mutual fund industry in India is lower as compared to other countries, the growth of this sector in India is higher than in other nations.Over the previous decade, the mutual fund industry in India has experienced a CAGR of more than 12%.
As of 31st December 2019, the Assets Under Management (AUM) had crossed a new milestone and was worth Rs 27,25,932 crore. Mutual funds investment in India has empowered several individuals to create wealth over a long time.
If you have been contemplating beginning your wealth creation journey with mutual funds but aren’t sure about how to begin, this article will help you address some important questions.
How Do Mutual Funds work?
Investors pool in money to form a mutual fund and an asset management company or an AMC is appointed to manage the fund according to various goals. They have professionals who understand how market and money flow works and then there are trustees of mutual funds who monitor the AMCs activities to ensure that investors’ money is protected and is growing. The AMCs’ invests that money in share market, bonds and securities. The high fluctuation in the stock markets does not ensure a subtle growth of the money and so the professionals in the AMCs come up with a better option. For equity investments they invest, not in one, but several industries. Now, if one of the equity stocks fails to give profit, others can compensate for the loss and balance the debt. Likewise, your money is always protected and growing at a substantial rate.
After investing your money in mutual funds, you are then given units which represent the money invested in the funds. These units are easily redeemable to get back your money, mentioned along with NAV, that is Net Asset Value. The NAV represents the value of one unit of your investment after all your fund expenses and management fees are paid. With this, you can check the market value of your investment by multiplying the given NAV to the number of units you hold.
Types of Mutual Funds Investments
Mutual funds investment in India is possible in two ways, through lump sum amount or SIPs, or Systematic Investment Plan. This makes mutual funds accessible for anyone, for entrepreneurs, salaried, businessmen etc. The gains generated from these investments are then distributed proportionately among the investors depending upon their NAV. On the whole, investment in mutual funds is one of the most viable options for common people in India who are not able to devote their time in markets and look to opt for a better solution for the growth of their money.
Investing in Mutual Funds:
You should keep in mind a few things when investing in mutual funds:
- Understand your risk-taking capacity and capability, referred to as risk profiling.
- Divide your money between various asset classes, asset allocation.
- Compare mutual funds based on investment objectives and past performance, thus identifying each asset class.
- Decide in which mutual fund schemes would you be investing in and apply for application online and offline both.
- Follow-ups and diversification of your investment are important to get the best out of your investment.
Investing in mutual funds will require you to have a well-defined goal answering the question- why are you investing in mutual funds.
After identifying the risks be prepared with your details like address proof, identity proof, a cancelled check and passport-sized photographs. Use your PAN card to complete your KYC details. After completing all the necessary details, get in touch with someone likely to help you invest your money the right way. This could be a broker, an organisation or through some websites or apps. You will be informed of all the required details and then your capital would be invested in that particular mutual fund for substantial growth. The period of investment will depend upon you, giving you the authority to credit your money back to your account whenever required, with a minimal fee deduction.
Understanding the schemes
You might have heard the phrase -” Mutual funds investment are subject to market risks, please read all the scheme related documents carefully”. Adhering to this phrase is important, for you are investing your hard-earned money. Reading about all the schemes and plans before an investment is the most important thing when investing in mutual funds. Direct investment or investment through SIPs, both are beneficial but will come at some risk, resulting in giving you a happy profit.
Mutual funds are a proven way to create wealth over the long term for the busy or lay investor who finds it difficult to invest directly in equity markets. Mutual funds can also be an attractive option for those looking to invest their funds for a relatively shorter duration. It is important to evaluate one’s goals, objectives, risk appetite and investible amount before investing in mutual funds.