Beginners Guide for Mutual Fund Investments
Living a contented life requires comfort as well as the attainment of all life goals. With hard work, you will be able to secure a relaxed livelihood. However, for ensuring that your dreams come true, you should plan your finances accordingly. One way to do that is by investing through mutual funds. If you are confused about how to invest in mutual funds, one way to learn about it is to research online and gain knowledge.
Mutual funds are a popular investment instrument in which money from many investors is collected/pooled and then invested in stocks, bonds and other money market instruments. Still, you must understand how mutual funds work and provide returns before you invest in them. Reliable financial advisory firms like FinEdge can help answer your questions about how to invest in mutual funds. Their team of experts will help you understand the pros and cons of mutual funds.
Types of Mutual Funds
The mutual fund industry is emerging as a popular investment avenue. While comprehending about how to invest in mutual investments, it is imperative to know about various types of mutual funds.
The mutual funds are possibly one of the most flexible, comprehensive and hassle-free methods of investing money that can incorporate many investment needs. Further, the structure of different funds allows investors to choose one based on their risk-taking capability.
Mutual funds are divided into three categories, as follow:
- Open-Ended Schemes
Under the open-ended scheme, you will be allowed to buy or sell units at any point in time. There is no fixed maturity date, and you can directly deal with the mutual fund for your investment and release.
The liquidity of these scheme with the convenience of selling at net asset value (NAV) is their critical feature.
- Close Ended Schemes
Close-ended schemes have a maturity period, and you will be allowed to invest only during the launch period known as New Fund Offer (NFO). No new investments are permitted after the offer closes. According to the demand and supply situation, the market price of the stock exchange can differ from the scheme’s NAV.
Some close-ended schemes provide you with the additional option of selling the units directly to the mutual funds through periodic repurchase. SEBI (Securities and Exchange Board of India) ensures that you get at least one of the two exit routes according to the regulations.
- Interval Schemes
The combination of open-ended and close-ended schemes are called interval schemes. They allow you to trade units at predefined intervals. You may trade on the stock exchange or keep it open for sale or redemption during pre-determined intervals at NAV prices.
Before putting the lessons about how to invest in mutual funds to use, you should consider the growth, stability and income provided as well as your risk-taking capability.
Advantages of Investing Through Mutual Funds
It is vital to know the advantages before you understand how to invest in mutual funds. The following benefits will help you make the right decision:
- Diversification: With mutual funds, you can diversify the investments. You should seek professional advice to gain the knowledge of how to invest in mutual funds and invest in shares, bonds and others.
- Tax Efficiency: Mutual funds are comparatively more tax-efficient than other types of investments. For instance, long term capital gain tax on equity mutual fund is zero. So, if you sell your investment one year after purchase, tax payment is not required.
- Possibility to Start Small: The benefit of mutual funds is that you can start investing with a small amount via SIP.
- Transparency: Another advantage of mutual funds is their transparency. The SEBI regulations require the companies to make all disclosures.
- Choice of SIP: The flexibility of mutual funds allows you to invest through SIP (Systematic investment plan) and maintain investment discipline.
While you are beginning to start investing money or have started that already, you must keep in mind the benefits that mutual funds provide you. There are reputable financial advisory firms like FinEdge, who with their credible team, can provide you with guidance about how to invest in mutual funds. They will ensure that your needs and requirements get fulfilled.