Things to remember while purchasing Mutual Funds

 

In Previous articles we discussed about Robinhood traders i.e. Intraday Traders, Short term traders and Long term investors. In this article we will discuss about the investors in mutual funds:-

First of all investors should know what are the mutual funds and what are the benefits of mutual funds above the above mentioned trading methods. Mutual funds are combination of stocks, bonds, debt instruments and various investment options. Mutual funds are professionally managed by financial advisors and they switches between various investment options available and shuffle the stocks wherever required.

When they know that market is under trend for various reasons they will reduce the stocks and switch safe instruments of investment. When they market is under bull phase so they increase the allocation in stocks and reduces their investments in other investment options.

1.       Don’t need to bother about the buying an individual stock or multiple stocks after through market research:-

Since every person in never will not be expert in the picking the stock at the right time and at right price and even doing so they may loss the investments which never get recovered even after holding for multiple years , so for them mutual funds are best options. Depending the risk appetite of investors, investors can pick up the mutual funds as there are so many mutual funds available in the market such as balanced funds, Index funds, Debt funds and various sectorial mutual funds. The persons which are more conservative may go for debt funds or Index funds as they will get returns more than FD from these mutual funds.

2.       Monthly SIP (Systematic Investment Plan):-

Investments can do the investments in mutual funds using SIP and investors can start the SIP with low amount which will as low as Rs.100/- only. By doing SIP you can get benefit of market downtrend as you will get more NAV units against same investment amount. By doing SIP you will get accumulated units over the period of time and which will built your portfolio.

 

3.       No need to watch daily Mutual funds gains or loss as in case of stock market:-

There is no need to track your mutual funds as required after picking up a particular stock. As you can keep mutual funds for years to the potential gains from them. Since mutual funds consists of multiple stock and other investment options so there is no need of panic in mutual funds even if 1-2 stocks doesn’t perform in mutual funds.

 

4.       No need to open DEMAT account:-

There is no need to open a DEMAT account for buying the mutual funds. You can directly purchase from mutual fund houses after verifying your KYC. For doing the KYC you don’t need to visit any branch or anywhere, now days you can do your KYC through online mode. You can start investments immediately after verification of KYC. In mutual funds you can get the FOLIO no. against your purchases.

 

5.       No need of buying multiple Mutual funds:-

You don’t require to buy multiple mutual funds as in case of stocks where you required diversification in order to face both uptrend and downfall in stock market. Mutual funds are in itself are diversified and so you can buy max. 2-3 mutual funds such one Index fund, One out of balance funds, Debt funds, large cap funds, Midcap funds, Small cap funds, Multicap funds, sectorial funds etc.  Don’t create a mess of buying all mutual funds available in the market in name of diversification.

 

6.       Don’t expect unrealistic returns form mutual funds:-

You can expect only 11-13% returns on annualized basis from mutual funds which are sufficiently higher from the FD’s and Debt instruments. So don’t expect that mutual funds will get doubled every year. If you hold mutual funds for the period of 10-15 years than you can expect returns of 11-13% on annualized basis. 

 

7.       You have to Patience  enough while investments in Mutual funds:-

While investments in mutual funds you have to patience enough to reap benefit of your investments. If you plan to buy a mutual funds for period of 1-2 years than you should not do the investments in mutual funds as mutual funds will required investment period of more than 5 years at least. If you can hold the mutual funds for period of at least 5 years than only you can invest in mutual funds.

 

There are following things which you must do before investments in Mutual funds:-

1.       Annual charges, buy and sell charges for mutual funds:-

You must check the annualized charges which are charged by mutual fund houses against management of mutual funds. Higher annualized charges will ultimately lower down your gains. Check also exit load on Mutual fund and any buying charges charged by mutual fund house of any broker. You must check all this on its own.

 

2.       Track record of mutual funds managers:-

Check the track record of mutual fund managers. Check their qualification and various other funds managed by them in recent past and the performance of mutual funds managed by them. Don’t be in hurry to buy mutual funds as you are planning to invest in mutual funds for period of 5-10 years not for days or months.

 

3.       Check past performance of mutual funds:-

Check the past performance of mutual funds. There are so many websites which shows the performance of mutual funds in past 5-10 years. It is not necessary that mutual funds which have done better in past will do the same in coming years. But it has been observed that the mutual funds which done best in past has managed to do the best in coming years as well and mutual which failed to perform in past will never able to beat the other mutual funds.

 

4.       Check your factor of safety before investments:-

Before investments check factor of safety required in mutual funds. If you don’t want to take any risk and want your principle amount to be intact then invest in debt funds. If you are aggressive investor then go for large cap/Midcap/ Small cap/ Muticap funds or even you can choose the index funds for the same. It is always advisable to go for index funds as these funds contains stocks of Nifty or Sensex. So these will give you returns in proportion to the rise or fall in index.