A mutual fund is an investment vehicle that pools in money from you and other investors to invest that amount in distinct financial securities like bonds, stocks, equities etc. The securities get selected as per the fund’s investment goal and objective. For instance, if the investment goal of the fund is capital appreciation, the fund will primarily invest in equities. And if the goal is to generate satisfactory income, the mutual fund will invest your money in bonds or money market securities. Mutual funds are managed by fund managers who aim to ensure your investment goals are met.
Why must you consider investing in mutual funds?
- Risk diversification
Mutual funds endow risk diversification by investing in a portfolio of bonds or stocks throughout various sectors. A diversified portfolio lowers the risks linked with a single bond or stock.
- Professional management
Mutual fund schemes are managed by fund managers with high-end knowledge and experience. Their goal is to make sure that your objectives to invest in the scheme are met.
- Wide range of solutions
Mutual fund schemes come with a wide range of solutions to match distinct investment needs as well as risk appetites. For instance, investment in equity mutual fund is best for mitigating your long-term financial goals like children’s higher education, retirement, marriage, etc., while debt fund investment is prudent if you are looking for regular income or hold a short-term investment goal.
- Investment modes
You can make investments in mutual funds through lumpsum form or via an SIP (systematic investment plan) based on your specific financial needs and situations.
- High liquidity
If you invest in an open-ended fund, you can sell and purchase your units at any time. Your overall buyable or redeemable value depends on the mutual fund’s NAV (net asset value) for that specific day. Close-ended funds also can be liquid. Though they are for a fixed duration, a close-ended fund is listed on an exchange after the NFO (new fund offer) closes. Once such funds get listed on the stock exchange, they can be freely sold and purchased. So, whether you purchase a close-ended or open-ended fund, there is always high liquidity available. However, note that in the case of ELSS (equity-linked savings scheme), the lock in period is of 3 years.
- To save taxes
A mutual fund can assist you avail tax benefits if you invest in ELSS under Section 80C. Besides regular income, every financial gain gets taxed. While taxes must not be a primary driver for preparing your investment strategy, being aware of the tax does endow you with the potential to ameliorate your post-tax returns.
How to invest in mutual funds through the digital mode?
Step no. 1 – Visit the official website of any of the listed –
- An AMC (asset management company)
- Mutual fund distributor
Step no. 2 – Complete the KYC form available on the authority’s site. You must digitally submit copies of the listed documents –
- An identity proof (passport, Aadhaar, driving license, or voter ID)
- Address proof
- Passport sized photo
Step no. 3 – Complete your IPV (in-person verification). This can be done through video conferencing. Once done, you can begin investing in the mutual fund scheme of your choice.
The earlier you begin investing, the more corpus you can accumulate. So, in case you save every month a specific amount and you are looking for the best investment deal, opt for a mutual fund. Ensure to begin with small periodic investments.