New To Mutual Fund Investment? 5 Things You Should Consider

Mutual funds are a straightforward way to get into the share market industry. Mutual funds are also welcoming to, and the risk-return averages are much more on the safer side.

Mutual funds are an effective alternative to merely saving all your funds in fixed deposits.

Like every investment, there are a couple of things to look out for, while investing your hard earned money in mutual funds. The primary motive should be to find an excellent Mutual fund company to help you with managing your funds.

What you should keep in mind while investing in mutual funds:

1. The Product that you are investing in

The very first thing every newcomer investing in mutual funds should know is what kind of product or what type of fund he/she wants to invest in.

You can do it systematically by finding the right allocation method; you can also segregate your investments in various asset classes based on the risk. Our recommendation would be starting out with systematic monthly investments.

Start with 100% equity mutual funds, and then slowly move into debt mutual funds. The ideal ration would be 75:25.

2. Understanding the available investment options

Most mutual funds have three options built in, Growth, Dividend payout and dividend re-investment.

While a growth plan is the one mostly promoted as the wealth creation option, understanding the three options are good

Dividend options are good for people who would like to add liquidity to their funds. These may help in short-term benefits as dividends help in capturing the capital appreciation for a given period.

One thing to keep in mind is that Dividends are not guaranteed.

3. Understanding Tax.

Now, most young employees try to get into mutual funds just because they heard someone say that they are eligible for tax reductions once you invest in mutual funds.

When you invest in equity mutual funds, there is no immediate impact on tax unless you have a deduction to be claimed.

If you are not planning to take a deduction, there is no need to disclose any mutual fund investments. A reduction in tax will be based on the extent of investment made in relation to the taxable income of the individual.

4. Evaluating the timeframes.

Now, finding the right time to pull the plug on your funds is also important, you can opt for a shorter or more extended period based on the risk associated with your investment, this will require you to do some background research.

But a consultant from a good mutual fund company can help you out with that.

5. Don’t look for immediate profit.

While investing in mutual funds, you should not look for immediate gains, give your funds some time to understand the flow of it. Always look to compound your gains.

Playing the short term game will see you paying more for transaction charges and capital gains tax.