Mutual Funds are one of the best investment plans, which are professionally managed investment schemes that assist in providing highest returns compared to any other investment options. In Mutual Funds money from several investors is pooled by an Asset Management Company (AMC) and invested in different instruments such as debt, equity and money market securities. Asset Management Company (AMC) returns the resulting profit after making deductions to the investors as dividends or capital appreciation.
A good mutual fund can fetch you higher returns on your investments. There are several ways available where you can make your investments and get good returns. But, once you decide to make your investments in mutual funds, then you should choose a scheme that can get you higher rewards. Following are some points listed that one should keep in mind before investing in mutual funds that can help you become rich in India by investing in mutual funds for a long term.
To make investments in Mutual Fund, you first need to understand the options that are available for you to invest in Mutual Funds. It includes:
Mutual Funds can also be categorised based on structure if they are open or close-ended:
Open-ended: You can redeem the investment in these funds at any point of time and get your money within a few days. Open-ended funds are open for purchase and redemption throughout the year.
Close-ended: These funds come with fixed maturities and money cannot be withdrawn from them before maturity. Close-ended funds can be purchased only during the initial offer period and offer can be redeemed at a specified maturity date.
The primary two ways of making an investment in a mutual fund is SIP and lump sum. SIP (Systematic Investment Plan) investment is a recurring investment whereas a lump sum investment is a one-time investment.
SIP: SIP investment is a more disciplined form of investment where you need to save money every month. The monthly investments are automatically deducted from your bank account and invested to the selected equity mutual fund investment, on a specific date and for a specific duration. In SIP, you will continue investing in markets during higher levels as well as lower levels, which get you a weighted average return.
Lump Sum: A lump sum investment is considered when the investor has a big amount of money to invest at one go into a chosen equity mutual fund. Lump sum investment is done by more educated investors with the help of financial advisor, who come with a better understanding of the market and current valuations. Lump sum investments earn well when market and share valuations are low.