Timing the entry is crucial in mutual fund. If you get it wrong, the situation can be salvaged by exiting at the right time. However, wrong fund selection, especially by those making their first mutual fund investment, can lead to losses that can put them off mutual funds forever.
What should be your first mutual fund investment? The answer is different for different investors and depends on their age, financial goals, risk-taking capacity, etc.
When it comes to mutual fund investment a lot of people are aware of it, yet do not know how and what they exactly mean or what they do.
What is a mutual fund?
Mutual Fund is a kind of investment vehicle that pools people’s money and invests in various money market instruments like stocks or shares of companies, government bonds, commodities etc. It is basically a trust, which takes care of the funds or money that its members put in, in this case, yours the investor’s money.
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In simple words, if today as an investor you do not have the funds to buy shares of 5 different companies together, or you do not understand the markets much and when to enter and exit the markets and what companies to invest in and when to get out of it; then mutual funds do that for you.
Example of how Mutual fund companies work for you
It is like when one friend doesn’t have money to order a pizza or does not know what the different toppings like jalapenos and paprika or olives would taste, other friends also pool in money for a large pizza and ask the chef to suggest the best and place the order, thus all get a slice each and most likely will have a good tasting pizza.
Mutual funds follow the same approach, wherein the other friends pooling in money here are different investors from all over the country and the chef is the financial expert knows as Fund Manager, handling your investments on behalf of the mutual fund house to make sure your investment pizza is pan fresh and you get good returns as well.
Great you are starting early.
Don't look at absolute amounts. Look at percentages.
Ex: If you invest Rs.1000, a gain of Rs.100 is small but in terms of percentage its 10% which is very good. So dont look at returns in absolute.
You have the time by your side, if you can postpone your expenses & save a little more today you will have a large corpus at the end of 2/3 decades.
Remember Compound Interest is the eighth wonder of this world. A wonder that can affect our lives unlike the other 7. Get it working for you!
Start early but dont be childish about your investments. Dont think of spending/skipping small quantum for investing. Dont waste them on people who come and TIP you on the next big idea. I am sure you know Warren Buffett, he is the 2nd richest man in the world and he has generated a return of 20% over the years on this portfolio. So be careful in where you invest.
Keep increasing your investment amount every year as your income grows. Keep a target of atleast 15% hike in investment each year.
Choose good mutual funds with long track records & stable fund house. Dont run behind recent performances or ratings. Look for stable long term returns.
No Exit Load.There are two types of loads (charges) , investor has to pay while investing in mutual funds – Entry load and Exit load. Entry load is to be paid at the time of entering the mutual fund investment. In India, it has been abolished by SEBI since last few years.
Exit load, on the other hand is to be paid at time of the redemption of the mutual fund investment if the redemption is before stipulated period of time. Some mutual funds have come up with the idea of abolishing the exit load totally on their products which will help the investors to get back their investment any time in case of urgency without paying in exit load. In other words, there will not be any lock-in period for such schemes.
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