Mutual Fund advice for beginners

There are many investment option today for an investor. These are in Govt sector as well as in private sector. Some of the popular investment options are Bank FD, Post Office schemes, Bonds issued by RBI, Govt gold bonds, Bonds issued by PSUs, Company bonds, Company FDs, Stock market (Shares) and Mutual funds. These are having different risks and different returns and one has to choose the investment instruments accordingly as per the individuals risk perception. Generally people do not put all their eggs in the same basket and invest in different types of schemes as mentioned above which helps in averaging the risk also to some extent.

Mutual funds are a very popular investment options as they do some home work for us. For example one can buy bonds and shares from the share market directly but one does not have knowledge of these things and may incur loss by buying wrong company shares or risky bonds. So Mutual funds will buy these shares as per their knowledge base and experience and allot us the Mutual fund units. If the Mutual fund does its job well it is natural that it will earn good return which it will distribute to the Mutual fund unit holders. That is the reason why instead of directly investing in different companies we go through the Mutual fund house route. There are basically three types of Mutual funds - one is which invest primarily in shares (equity) and are known as equity fund. Second is which invest in equity as well as bonds and debt instruments etc and are known as Balanced fund. The third is Debt fund which invests in mainly debt instruments (bonds etc) of the companies. They perform differently and in different market conditions they give varying returns. For example equity funds will give very good return in a share market going up. While debt funds will give better returns in a stagnant and decreasing share market. Balanced funds will be giving returns in between these two funds. Now a days one can invest in Mutual funds with as little money as Rs 500. Some of the Mutual fund houses have slashed it to even Rs 100.

Generally people open a Demat account in a bank or some financial company through which one can buy and sell online all the investments like shares, MF units, bonds, company FDs etc. One can buy the MF units directly also from the MF fund house portal or physically through a MF agent by filling an application form.

Please note that the Mutual funds invest their money (which we have given them for investment) in stock (share) market and various bonds and debt instruments which are riskier than the Govt securities (like Post Office schemes or gold bonds or RBI bonds) and it may so happen that at times due to some economic slowdowns or other political conditions the share markets may not perform well. In such a case Mutual funds will also not perform satisfactorily and there will not be any significant gain. This risk factor should be clearly understood by the investors. At the same time if there is stability in the world politics, no war and our country develops and improves in the business and industry operations then share market may boom and the Mutual fund investor will also gain much more than what he would have got by investing in the usual bank deposits.

One last thing is that the share market or Mutual fund investment is not for a short time but is to be made for a longer time frame (8-12 years) then only one can get a good return in favourable economies condition.

Mutual funds are considered to be safe investments in the sense that the fund managers of each fund is responsible for the operation of portfolios having larger exposures in the management of larger funds. However, the other factors are there influencing each mutual fund ie market behaviour, credibility of the company, decision of the Central - government impacting the shares and mutual funds.
However, it is always better to take sound advice from the mutual - fund consultant connected with the bussiness for a minimum of ten years.
You may follow the following tips so as to have better appreciation of your fund-
1) If you are the fresh investor in this area, choose SIP funds of different portfolios such as Debt - fund, Equity, Balanced - fund etc.
2) In each fund, you may start with a minimum of Rs 500/- and raise it further as per capacity.
However, a minimum of Rs 2000/- each month for say at least 60 months in Debt - fund, Index- fund, Equity - fund would lead to better appreciation of your portfolios.
3) Stay invested for a longer time. Don't be panic with the rumours circulated by any quarter.
4) You need to track your portfolios at least in a month, so that you may take remedial steps if required.
5) You may go in the mutual fund magazines especially the Economic Times so as to have better ideas of the market - condition.
6) Procure the investments such as SBI, Birla Sun Life, Tata Digital Index, HDFC Nifty, ICICI Prudential etc.
7) You have to open a Dmat account for the purpose of withdrawal of money if required.

1. Decide what is for you want to invest in mutual funds. What I mean is how many realisations you want. For example, you want money for your son's education or your daughter's marriage. Like this where you want to use this money and what is the quantum of your requirements should be kept in mind before starting your investment in mutual funds. You should decide on the goal.
If you have a long-term goal, more risk can be taken. In such case equity funds are better. If you have a medium-term goal, you should not go for high risk and there should be a limit. In such a case debt funds and balanced funds are very good.

2. Go for systematic investment planning. First of all, decide on your capacity for investing some fixed amount in your mind. You already know how much money you wanted in the end. Basing on this you can decide the amount and the tenure of SIP. You can go for as low as Rs.500/- per month also.

3. You can start your investment with ELSS scheme. It is a tax-saving fund. The tax exemption of Rs.1.50 lakhs under Section 80C of the Income Tax Act is available. ELSS is locked for 3 years. the investors will not succumb to the temptation of booking profits in a short period. It is better you start SIP and then that amount into ELSS funds is the best way to do.

4. Initially, take the advice of a portfolio manager who is having good expereince in financial advising. He will help you in understanding the total issues clearly. It is better always to invest in funds which are having stable fund management teams and the past 3-5 years performance was good.