How We Can Invest in Mutual Funds?

A mutual fund is one of the popular investment options where the Asset Management Company (AMC) collects the money from several investors and further invests it in different instruments such as debt , equity, money market and securities. The consequent profit, after deductions by the AMC, is circulated among the investors according to their mutual fund investment portfolios.

Even though mutual fund investments are subjected to market risks, more people are keen to invest money in it because it can provide good returns despite mitigating losses. What’s good about investing in mutual funds is that you need not have to be an expert on the market since investments here are made by a group of experts who decide how to invest, when to invest and where to invest.
So now that you know what mutual funds are, it’s time to understand how you can invest in mutual funds:-

1.Asset Allocation: To start with mutual funds investment, the first thing here is to understand what kind of portfolio you want. This step is also known as asset allocation. Always allocate your assets in a way that it forms a perfect amalgamation of high and low-risk funds. As a general rule, the amount of funds you invest to low-risk debt instruments should be equal to your age. This means, any individual who is 35 years of age, should allocate only 35% of their funds toward debt instruments. This will protect them against any risk in the remaining assets that they have invested in.

2.Shortlist Funds Type: Shortlisting the fund type is considered an important part of mutual funds investment. Once you have allocated your assets properly as per your needs, the next step is to study and compare different type of mutual funds on the basis of their past performance and investment perspective. For this, you can refer to the shareholder's reports and prospectus provided by the AMC. The prospectus will help you get complete information about different types of fund while the shareholder's report will assist you in understanding the past performances and regularity of returns. Apart from the research work, you must also determine your financial goals and get answers to questions like Are you investing just to substitute your income or for retirement / marriage ? What is the time limit of return you are comfortable with? While short listing funds type.

3.Compare Funds: Once you have shortlisted the funds, you should compare and pick the right funds. For example, when looking for a mutual fund,
a) Check the past records of the funds from shareholder’s report or through online websites.
b) Look for the top 5 funds in the asset class that match your financial goals, time frame, and risk profile.
c) Check performance of the funds for a different time frame, such as 3 months, 6 months, and so on.
d) Check for the fund managers profiles and asset allocators by going through the prospectus of that particular mutual fund.

4.Understand How Important the Diversification is: However safe your mutual fund investment may appear, it may be risky at some level. Therefore, the best way to expand your investment is by allocating assets in instruments that are not completely correlated. Make sure that your mutual fund's portfolio is a concoction of equity, mixed market, debt, gold and other types of funds to balance out the risk factor.

Conclusion: So now when you have made the mutual fund investment in the selected funds, it is also necessary to keep a track of the funds you have invested in. Even though your funds are managed by investors, having a thorough knowledge of your portfolio is important.