How to Start Mutual Fund
Mutual funds are one of the best and safe investment instruments for wealth creation, tax savings, and achieving financial goals.To start a mutual fund investment, you need to open an account with broker e.g Hdfc,Icici,Zerodha as per your choice.Now decide how much you want to invest in it. The best way to invest in mutual funds is through systematic investment plans (SIPs). SIP allows you to purchase units of your selected mutual fund as per your budget at fixed intervals (typically, once a month). You can link SIP with your bank account for automatic debits.Next step you need to do is First, shortlist a few schemes with credible long-term performance record. While short-listing a fund, you should analyse its short and long-term returns to understand its performance history. Next, pick the ones that are in line with your risk profile and investment objectives.
If you want to invest for doubling your money every 5 years, then invest
>> for minimum 5 years
>> in 5-star-rated Balanced or MultiCap Mutual Funds
>> taking the monthly SIP route.
Under the current market situation, I would recommend investment in 5-star-rated Balanced MFs taking the weekly/monthly SIP route.
So, the best way to save money is to lead a reasonably simple life like the Billionaire Mr Warren Buffet and our own Billionaires, Infosys founders, like Mr Murthy & Mr Nilekani.
>> (Monthly Earnings minus Monthly Expenses) = (Monthly Savings)
In reality (as per the Billionaire Warren Buffet), it should be,
>> (Monthly Earnings minus Monthly Savings) = (MonthlyExpenses)
So, you should FIRST put your money in savings (=investment) on a monthly basis and THEN start spending for the month from the balance money available to you after your monthly systematic savings/investments.
Then the next question is: How to invest?
What are Mutual Funds (=MFs)?
When we invest directly in the stock market, we purchase shares of AsianPaints, Infosys, ITC, Nestle, TCS…. But, as we are not experts, many times we buy & sell shares (=stocks) at wrong prices which lead to unexpected losses.
So, instead of shares, wise people purchase MFs. Each MF is managed by a Fund Manager who is an expert in buying & selling of shares. So, when you buy a mutual fund worth Rs. 10,000/-, the Fund Manager buys many shares worth total Rs. 10,000/- making sure that he is buying them at the right price. So,when you buy an MF, you don’t have to worry about buying individual shares. The Fund Manager does it for you.
MFs typically give about 15% TAX-FREE returns per year in the long run. In other words, if you invest in Mutual Funds for 4–5 years, then your invested money will double in 4–5 years. (In Bank/Company Fixed Deposits, Recurring Deposits etc. your money will double only in about 8-10 years as you can get maximum 7-10% returns.)
You can double your investment in approximately 4-5 years if you invest, taking the monthly SIP (Systematic Investment Plan) route, in 5-star-ratedBalanced and/or MultiCap Mutual Funds, and that too TAX-FREE. (Please note that the highlighted words are very important.)
Invest equal amounts of money in 2-3 of the following Mutual Funds , in the first 5 days of every month. In other words, start a weekly/monthly SIP (Systematic Investment Plan) by going through ICICI/ HDFC/ SBI or any other dependable bank or broker.
Mutual Funds (MFs) are very good for safe investments if you don’t touch the investment for 5–6 years. (This investment is to be done for a long-term, exactly the same way as you do when you purchase a piece of land or a house or a flat or gold. Such items are not to be sold in just 1-2 months/quarters/years but only after 5/10/15/20/25/30/…… years.)
Investments in MFs are safe though the value of investment fluctuates as per the stock market movements.
You should ideally do monthly investments in 2–3 MFs taking the SIP (Systematic Investment Plan) route.
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Investment Categories/asset classes & Yearly Returns:
FDs/RDs:7–9% per year
Gold: 9–10% per year
Real-Estate: 10–12% per year (Limitation: Can’t invest just a few thousands per month in real estate. You have to invest in lakhs only. If you urgently need money, you can’t easily get a buyer. From the time you think of selling, till you get the money in hand, it could take a few months. Also, you can’t sell just one room out of a 2 bed-room flat, if you require only a few lakhs for an emergency.)
Mutual Funds (You can invest as low as Rs. 1000 per month in a mutual fund. You can also sell only a very small part of your investment in a 5-star MF if you need only a small amount for an emergency.)
>> 5-star rated Hybrid/Balanced MFs (Returns ~ 15% per year tax-free in a block of 5–6 years. Typically, your invested amount will double every 5 years.) Prices of Hybrid/Balanced MFs fluctuate less than the prices of MultiCap MFs.
>> 5-star rated MultiCap MFs for medium risk (Returns ~ 20% per year tax-freein a block of 5–6 years. Typically, your invested amount willdoubleevery4years.) Prices of Hybrid/Balanced MFs fluctuate less than the prices of MultiCap MFs.
These fluctuations of prices can make you worry about your investments in MFs. However, if you have invested in 4 or 5 star MFs and if you are a long-term investor, then you should not worry about your investments in MFs at all.
After you make investments in 5 or 4 star Mutual Funds of Hybrid/Balanced and/or MultiCap category, don’t sell them in a panic for 5–6 years even if the stock market fluctuates substantially. They will go down in value & again go up. Don’t worry.
There are other categories which can give higher returns but are very risky. So, I am not recommending those categories.
Invest equal amounts of money in 2-3 of the following Mutual Funds , in the first 5 days of every month. In other words, start a weekly/monthly SIP (Systematic Investment Plan) by going through ICICI/ HDFC/ SBI or any other dependable bank or broker. Investing in these Hybrid/ Balanced Mutual Funds is a safe investment.
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In addition to PF…, First Invest in ELSS funds for Tax-Saving (3-year lock-in)
Axis Long Term Equity Fund | Invest Online
Hybrid/ Balanced MFs: (Returns ~ 15% per year tax-free in a block of 5–6 years. Typically, your invested amount will double every 5 years.)
Hybrid / Balanced Equity Oriented MFs
L&T India Prudence Fund
MultiCap MFs: (Returns ~ 20% per year tax-free in a block of 5–6 years. Typically, your invested amount will double every 4 years.)
MultiCap Equity Oriented MFs
ICICI Prudential Value Discovery Fund | Invest Now
Franklin India High Growth Companies Fund |Invest Online Now
These funds are managed by experienced fund managers. So, these are safe investments.
After you understand more about investments through these balanced MFs, you may also invest in multi-cap mutual funds after a few quarters.
Please note that directly investing in the stock market (=shares) is very risky and you may lose your money as it is a Very High Risk investment avenue. So, don’t invest in stocks/shares directly. Invest in MFs.
Investing = (Buying and not having any intention of selling for minimum 1 year or preferably for minimum 5–10 years) = (Like our investments in real estate or gold where we don’t think of selling it for a very long time)
Trading = Buying a stock (=share) and having plans of selling it, in less than a week/ month/ quarter/ year for making quick profits. Traders are sometimes lucky in some initial trades (=beginner’s luck). However, in the long run, they don’t make money or make losses.
Depreciating Asset: Value of a Car worth Rs. 7 lakhs becomes ‘zero’ in 10 years. (Shallow and unwise people normally splurge on latest & expensive cars, bikes, mobile phones, watches…)
Appreciating Asset: Value of an investment in a flat/house/Mutual Fund worth Rs. 7 lakhs becomes approx. Rs. 25-28 lakhs in 10 years. (Rich & Wise people prefer to invest in appreciating assets.)
In 15/20/25/30/35 years, it will become 8/16/32/64/128 times. Your money would just keep on growing.
Mutual funds are investment programmes which are funded by shareholders that trade in diversified holdings and is professionally managed
Before investing in mutual funds, remember your investment goal and invest accordingly for your:
- Own House in future
- Your children’s education
- Own car
Also remember that mutual funds are subject to market risks, so invest after checking all the options.
Still, there are different types of mutual funds ranging from high risk to almost no risk, High returns to low returns.