Tips for Investing in Mutual Funds for Beginners
There are several points that Beginners need to keep in mind before investing in Mutual Funds. We highlight the Six most important ones.
- Investor can chose mutual funds either directly or through investment/Financial advisor or distributor. It is advised that beginners should never use the “DIRECT” option to invest. As the absence of a financial advisor may prove costly in time. Tip no 1. Go through financial Advisor/planner to invest. At least till you feel you have learned the ropes well.
- Before investing you must determine your financial goal. Financial Goals can be any or all of the below;
.Planning for a house or contingency planning etc
Tip no 2. Define your financial Goals before you start investing.
- Do not blindly go by the recommendations of Mutual Fund advisor. Take a few minutes to “Google” the funds recommended. Check past returns, peer comparison and expense ratios. Tip no 3. Google the funds recommended by the Financial advisor.
- Defind your risk taking capacity. Before you write a cheque, think what is the sort of risk you can take. For eg., If you are nearing 60 your risk taking abilities may be negligible as against someone who is in early 20’s and just started working. Tip no 4. Define your risk appetite. Your investment should be consistent with your risk appetite.
- Consider a small SIP initially. If you invest monthly (Systematic investment plans), then you do 2 things. Firstly you test the product and secondly you mitigate risk. As SIP’s have an inherent mechanism to mitigate risk. And if you like the product (mutual fund scheme, the fund house etc), you can always chose to scale up your investments. Tip no 5. Use Systematic investment approach .
- Lastly, post investing, regularly monitor your investments. You should never leave your hard earned money at the mercy of the financial advisor or the fund house. Track your investments and see if there are variations from your set goals. Tip no 6. Periodically review your investments