Whenever an individual keeps on pondering about doing something with his/her disposable income, the thought of investment comes to their mind. But how to invest in is the next big hurdle. Now arises a million dollar question- What are the different avenues of investment? India, being a country with a conservative investment outlook of its population, they often try out safe havens for investment.
Traditionally people deposited their surplus money in banks in the form of recurring deposits, fixed deposits, etc. The other option was to save money in Post Office. Nowadays, with the increasing volatility of the equity markets the best instrument to invest in is Mutual Funds. Mutual Funds are funds which are pooled in from several small investors to form a big corpus which is then further invested in other safe government securities and instruments to give back the investors the best possible sought after returns.
So, how individuals with savings are going to invest in Mutual Funds? Let’s look at it!
1. Assess your risk appetite and decide the investment:
By risk appetite, we mean the maximum` amount of risk an individual can take while he/she thinks of investing in mutual funds. Investors with too high-risk appetite prefer to invest more in equity-linked mutual funds. On the contrary, investors who are cautious opt for investing in debt mutual funds. Here, rebalancing the portfolio has to be done from time to time and the debt-equity ratio needs to be shuffled from time to time based on the individual’s financial goal at that point in time. DSP BlackRock Tax Saver Mutual Fund is an equity-linked mutual fund with a lock-in period of 3 years.
2.Try investing small equivalent amounts in the form of SIPs:
Systematic Investment Plan or SIP as we are going to rechristen is a way of investing small amounts of money in a mutual fund scheme of one’s choice based on their requirements. In the previous years, the minimum investment amount in SIPs was Rs.500.
Currently, a new revolution has taken over the Mutual Fund industry-it is micro SIP wherein a wage worker is also taken into the fold of the industry because the monthly investment amount in micro SIP is as low as Rs. 100. Reliance and SBI are the forerunners of the micro SIP Mutual Funds in our country.
However, as per the regulators, there is no cap on the maximum amount of investment which can be done through SIP. But one fundamental should be clear in the investor’s mind that they should invest in mutual funds for a longer time horizon, mostly 10 to 15 years.
3. Build a diverse investment portfolio:
Diversification as we know means, putting your investment amount in different categories of funds to maximize returns. It is a very important consideration in the financial markets due to the volatile nature of the markets. Funds can be identified in the form of their market capitalization-large cap, mid cap, small cap and multi-cap. This market capitalization is of the companies and not for the specific funds.
Large-cap companies have market capitalization worth Rs. 20,000 crore and above. Mid-cap companies have defined market capitalization amidst Rs. 5,000-20,000 crore. Small caps are characterized by market capitalization below Rs. 5,000 crore. Multi-Cap is basically funds which are invested proportionately in a mix of large, medium and small-cap funds. Mostly average investors like to opt for mid-cap funds as they offer minimal risk with adequate returns.
4.Gain market insight into sector performances at regular intervals:
An individual should keep an eye on the performances of different sectors at least once during a quarter. This will give him/her an indication as to whether he/she needs to re balance the portfolio or stop investing in a particular sector which has become vulnerable and return aversion.
For example, IT sector stocks may have a dwindling nature of returns over a year but pharmaceuticals, banking, and infrastructure sector will always provide near stable and rich returns to its investors. Hence, making a wise decision to invest in a sector depends on an individual’s awareness of the quarterly performance of different sectors and his/her prudent judgment.
5.Follow either offline or online mode of investment in Mutual Funds:
Investors have two different choices/modes of investing in Mutual Funds- online and offline. They can invest as per their time and convenience. These two modes again have sub-categories, likely:
6.Invest directly through Fund House:
Individuals keen to invest in mutual funds, who have conducted their own research and have suitable time at their disposal may visit his/her nearest branch. On their visit an inquiry needs to be done in advance and also individuals need to carry a set of documents to let the investment process happen smoothly. These necessary documents are.
- Address Proof, i.e., electricity bill, gas booking card, etc.
- Identity Proof, i.e., Voter Card, Aadhar Card, etc.
- One canceled Cheque
- Passport Size Photograph(s)
The individual investor need to ask the fund house for the mutual fund application form and after duly filling it up, has to submit it along with the above- mentioned documents.
7.Invest through a Broker:
If an individual investor does not have enough knowledge about financial markets but still he/she wants to invest, he/she can take the help of a broker. A broker is an individual who has ample knowledge about the markets and he acts in the best interest of the client.
Brokers act as facilitators who help out their clients to do investment in mutual funds by finding out the requirement of the individual, discussing the investment proposal, taking the consent of the client and executing the investment contract. A broker is paid commission or brokerage in lieu of his services which is paid by clients.
8.Investment by using Official Website:
Investors who are technology savvy and have some time available with them, prefer to follow the online mode of investment in mutual funds.
To do this in a hassle-free manner, the investors need to fill out their basic information, submit the same for KYC check. The KYC verification can also be completed online by providing the individual’s Aadhar Card and PAN Card number. Once the KYC check is through, the individual can start investing online in the mutual fund of his/her choice.
App Based:Investors these days want more smart and convenient ways of managing their funds. Taking into consideration this factor, many fund houses have developed their own apps and allowed their esteemed investors to do all their transactions online.
After downloading this app investor can perform varied tasks like buying and selling of mutual fund units, checking account statements and fund balances, etc. HDFC Mutual Fund, Axis Mutual Fund, and SBI Mutual Fund are some of the notable fund houses along with many others offering their customers the convenience of app-based investment.
Fund houses provide a myriad of investment opportunities to its investors-it is up to the client to act in a logical way to optimize the value of their investments.
Tanu Shree Jain is Research Analyst at Elearnmarkets.com and StockEdge. She is a commerce graduate from Delhi University. She is currently pursuing CA. Also Studied CRTA from Kredent Academy.
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