What would you do if your mother asks you to buy a home appliance? You will probably start by researching it online, looking at the brands that sell it and its primary features/benefits. The more you know about a product, the more realistic your expectations will become. The same principle holds true when beginners want to include mutual fund investments in their financial planning.
With a lack of required information about various aspects of mutual funds, you are more likely to go off track from the objective of financial planning for beginners. Before you begin your journey as an investor, you must be aware of a few essential things to plan your investments right, such as:
1. The Degree of Risk Varies as Per the Type of Mutual Funds
To begin with, you must know that there are different types of mutual funds you can choose from to plan your investments. Each of these fund categories has a different risk level associated with them. For example, equity mutual fund investments are relatively riskier than investing in debt funds.
As the basics of financial management for beginners, evaluate your risk tolerance and then determine whether you wish to play safe or are willing to take some risks. You can check your risk appetite here.
2. Plan Your Investments Based on Your Financial Goals
Investing money becomes easier when you have made certain financial goals you want to achieve in life as part of financial planning. For example, if you wish to buy your dream home 20 years later, you can invest in the right equity mutual funds to achieve this goal. Once you have analysed your risk tolerance and have a clear idea of your goals, you can easily make a mutual fund selection.
In terms of financial management for beginners, it becomes easier to invest right when you do not lose sight of your goals. You can kickstart your planning here.
3. Get a good idea of the investment horizon
The investment goals and time horizon for which you can stay invested go hand-in-hand at the core of financial planning. For example, if you want to invest in mutual funds via SIP to buy a new home after 15 years. It will ultimately help you zero in on the right mutual funds to achieve this goal as expected.
Similarly, for mid-term goals, you can chart out a combination of equity and debt funds to get good returns and stability against the market's volatile nature.
4. Build the investment discipline via the SIP route
One of the most basic rules of financial planning is to invest continuously without fail to achieve various life goals. However, in many cases, people often fail to continue with their regular investment schedule because of personal needs or financial emergencies. This is where the SIP route to invest in mutual funds plays a vital role.
Firstly, you can start with mutual funds investments via SIP with as low as Rs. 500 depending on the scheme you select. Secondly, automatically deducting the chosen SIP amount at a predetermined date helps maintain discipline. You can use our SIP calculator for a more informed decision.
5. Diversify your portfolio
In layman's terms, it simply means not to invest all your capital in a specific fund or a specific type of fund. Each of the mutual fund types has its pros and cons. Depending on your risk tolerance, you may want to divide your investments into different asset classes to reduce the overall portfolio risk.
What should I check before investing in SIP?
Before making SIP investments for financial planning, you should check several essential things, including your risk appetite, investment horizon, and specific goals.
Which mutual funds should a beginner invest in?
For beginners, mutual fund selection comes after the primary step of understanding how different types of funds work. Based on the knowledge gained, they can make the right selection.
Can I withdraw my investments from mutual funds when required?
With open-ended mutual fund schemes without lock-in periods, you can choose to withdraw the investment without hassles. The same is not true for schemes with lock-in periods, e.g., ELSS or close-ended schemes. Further, exit load may be applicable if you withdraw your investment within a certain time (depending on the scheme type). So, while withdrawing the amount, please be mindful of the exit load.
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
The SIP Calculator results are based on an assumed rate of return. Please get in touch with your professional advisor for a detailed suggestion. The results are based on an assumed rate of return. The calculations are not based on any judgments of the future return of the debt and equity markets / sectors or of any individual security and should not be construed as promise on minimum returns and/or safeguard of capital. While utmost care has been exercised while preparing the calculator, NIMF does not warrant the completeness or guarantee that the achieved computations are flawless and/or accurate and disclaims all liabilities, losses and damages arising out of the use or in respect of anything done in reliance of the calculator. The examples do not purport to represent the performance of any security or investments. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax/ financial advisor before taking any investment decision.
Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.