How to Apply for Mutual Funds
Mutual funds are a scheme to invest the money of a layman in various assets. The number of mutual fund investors has been growing at a surprising rate. The funds get managed by fund managers who are believed to be very experienced in managing different assets.
So, here’s everything you need to know about mutual funds if you don’t know where to begin.
How do Mutual Funds Work?
Mutual funds are a type of investment vehicle that uses the money contributed by many people to buy different types of securities. Most people think of a mutual fund as a way to invest. You can use it to buy stocks, bonds, gold, and money market funds, among other financial securities.
A unit in a mutual fund gives you a small stake in each investment the fund owns. Mutual funds can be a great investment method if the investor doesn’t know how to invest and does not have the time to learn about investing.
Why Investing in Mutual Funds is a Good Idea?
Convenience
Investing in mutual funds is easy – just hand over your money to these companies, and they will try to make money for you. You can finish the whole process without any paper from the comfort of your own home. Also, when you start investing, you can keep track of where your money is getting invested.
Diversification
Diversifying your portfolio is important to lower your risk. For those with little knowledge of investing, this is important to handle the bad performance of a single stock or industry. Mutual funds provide a lot of diversification.
For example, you can buy up to 100 shares in a single mutual fund that tracks the S & P BSE 100 index.
Money Management
Mutual funds help you put money aside as investments regularly (as SIPs) or in lump-sum. Although actively managed mutual funds do not usually outperform the index in the long term, investing in “Direct” or passively managed mutual funds reap better returns without any effort, as they charge lesser management fees than “Regular” or actively managed mutual funds.
Mutual Funds Types
There are different types of mutual funds. Each type of fund tries to reach different goals. Most mutual funds are one of the following:
Debt funds
Fixed-income funds, also called debt funds, invest in corporate bonds, government bonds, and money-market instruments. Debt funds are a good choice if you want to make a steady income with almost no risk.
Equity funds
Equity funds put most of your money into stocks. The main goal of these funds is to grow their capital. But they are riskier because their returns depend on how the market is doing. Equity funds might be a good choice for long-term goals like saving for retirement or children’s marriage because the risk is spread out over a long time.
Funds Determined by Structure
Open-ended mutual funds
These are highly liquid as the investor does not have to pay additional fees if they want to withdraw their money before a particular time. Closed-end funds have a set date when the investor can withdraw their money, and if withdrawn earlier, the investor has to pay a penalty on their investment amount, known as “Exit Load”.
Periodic funds
There are parts of interval funds that are both closed and open-ended. Investors can’t buy or sell units of these funds at any time. You can only buy and sell money at certain times or intervals that have already been set.
Funds Determined by the Investment Goal
Mutual funds can also be grouped based on their investment goals.
Income funds
As the name suggests, the goal of income funds is to give investors a steady income stream. These are debt funds that invest in things like CDs, bonds, debentures, commercial papers, and government securities, among many other things. Low-risk investors can use them to make money in the short term. You could also invest in duration funds based on how long you plan to invest or how much risk you are willing to take. These open-ended debt investment vehicles buy debt and money market securities.
Growth funds
Capital growth is the main goal of the growth funds. These funds put much money into stocks, especially in growing markets. If you want to invest in them, you should have a long-term plan because they might be risky. Stay away from growth funds if, for example, you are getting close to retirement.
Tax-saving funds
Based on Section 80C of the Income Tax Act, tax-saving funds offer tax rebates that help save money on taxes. When you invest in these funds, you can get tax breaks of up to Rs 1.5 lakh per year. Tax-saving funds might be a good choice if your main investment goal is to save on taxes. Equity-linked savings scheme (ELSS) funds are a type of tax-saving fund.
Liquid funds
If liquidity is a big concern, overnight funds are an interesting option. These are open-ended debts. The best mutual funds invest in assets due to be paid off in one day. This makes overnight funds very easy to use. These funds have very little risk because changes in interest rates don’t affect them. Investors who want to spend a lot of money away for a short time can look into overnight funds.
How to Apply for Mutual Funds?
Investing in mutual funds is easy and simple. Follow these steps to start investing in mutual funds:
Step 1: Open an account with a mutual fund.
Step 2: Finish the paperwork for KYC
Step 3: Fill in the information asked for.
Step 4: Decide which funds you want to invest in based on your financial goals.
Step 5: Choose the right fund and send the money there.
Step 6: Give your bank a standing order if you use a SIP to invest monthly money.
Conclusion
A well-known financial saying says that if you want to get rich, you should be able to make money even when you’re sleeping. Investing in the best mutual funds could be a simple way to reach this goal. If you put money into mutual funds every month, your corpus grows. Your investment may start small but may grow significantly over time. Figure out your goals, choose the right funds, and start investing. You can get more information at Piramal Finance if you want to learn how to apply for mutual funds.