For new investors, mutual funds surely work as the best way to build an investment portfolio and earn. The Mutual Fund Investments are diversified into stocks, bonds, and other securities by a fund manager. He or she takes responsibility for your investment and help you reach your financial goals.
To invest in a mutual fund, all you need to do is find the right fund for your needs and buy shares of that fund.
Types of mutual funds
There are mainly three kinds of mutual funds. They are:
With open-ended mutual fund investments, you can sell or buy the securities at any time. These investments do not have a specified maturity date. The fund manager utilizes market opportunities whenever they arise to maximize your returns.
The close-ended mutual funds come with a fixed maturity period for your investment. This works like a mutual fund SIP. An SIP is a systematic investment plan wherein you can invest a fixed and nominal amount of money regularly and build a stable investment portfolio for you. These funds come with a New Fund Offer (NFO), which is the launch period. You can invest in these mutual funds only during the NFO. Sometimes, the price of the stocks may differ from the actual market price because there are many factors like expectations, demand, and supply that affect the price. The mutual funds are regulated by the Securities and Exchange Board of India (SEBI) and they make sure that you have enough exit options when the fund is not performing according to your expectations.
The mutual funds of this kind combine open and close-ended schemes. It comes with pre-decided intervals between the NFO and the maturity date. During these intervals, you can exchange your security units according to the market situation.
How to select the best mutual funds
Not all mutual funds operate the same way. Some funds invest in the startup business, some invest in only blue-chip stocks, and some invest in only specific market sectors. To pick the right fund, you have to first know the sectors the said fund operates in. You should stick to sectors that you have some knowledge of. You can use the Internet to find mutual funds that work in the sector of your choice and check for their ratings. Look for past performances of these funds before investing in one.
Benefits of mutual funds
The mutual funds have many advantages, which, in combination, help you reach your investment goals. Some of the benefits are:
- The diversification of your investment lowers risks
- Your investment portfolio is managed by a professional fund manager
- Mutual fund investments are simplified because all of your units are managed under one portfolio
- Converting your securities into money is simple and fast with mutual funds
- Mutual fund investments come with multiple tax benefits.
- You do not need too much capital to invest in a mutual fund SIP. In fact, most funds allow you to start with INR 500.
- The mutual fund SIP option makes the process of investing in mutual funds more efficient for first-time investors.