Mutual funds are a popular investment option in India. They are managed by asset management companies (AMCs) and pool money from multiple investors to invest in a diversified portfolio of stocks, bonds or other assets.
There are different types of mutual funds in India including equity funds, debt funds, mixed funds, index funds and sector specific funds. Each type of fund has its own investment strategy and risk profile.
You can invest in mutual funds through various channels, including online portals, mobile apps and offline agents. You must complete the Know Your Customer (KYC) process and provide the necessary documents such as PAN card, proof of address and bank details.
However, before you begin your mutual fund investment journey, ask yourself some key questions to avoid problems later on.
In addition to its many investor education initiatives, the Securities and Exchange Board of India has an investor reference guide, which helps inform an investor with a broad knowledge of the subject.
Read also: New to investment funds? Know these terms before you invest
Of the many established dos and don’ts, below are a few for your understanding before embarking on your investment journey.
Before you invest, ask yourself the question
- Why do I invest?
- How much do I want to invest?
- Where do I invest?
- If I don’t invest here, what are my opportunity losses?
- How long do I want to invest?
- Is this the best investment for me?
- Does this investment match my investment objective?
- How much risk can I take?
- Am I prepared to absorb losses, if so?
- Can I sell it whenever I want?
Before investing in mutual funds, ask yourself the question
- What is the track record of this fund?
- What types of securities does the fund invest in? How often is it made public?
- How often does it reshuffle its portfolio?
- Does this investment fund invest in securities that could affect my investment?
- How does the fund compare to other funds of the same type or an index of the same investment type?
- How much will the fund charge me when I buy units?
- What NAV would apply to me if I traded today?
- How much will the fund charge me if I sell units?
- How quickly will I get paid for the units I’ve sold?
- How often do I receive my account statements from the fund?
Ask your intermediary/distributor for it
- Are you registered as an agent of the Association of Mutual Funds in India (AMFI)?
- Which investment funds do you distribute?
- Are there any products that you do not distribute?
- Why is that? Is it because the products are not suitable for your customers or are there other reasons such as low commission rates for you? If those products are suitable for me, can you still help me buy those products?
- How long have you/your company been active?
- What education and experience do you have?
- Will you earn more if I buy this mutual fund instead of another? If you didn’t make extra money, would your recommendation still be the same?
- Is this purchase really in my best interest?
(See SEBI’s full reference guide here)
An investor should remember that mutual funds are subject to market risks. The value of your investment may rise or fall depending on market conditions. However, mutual funds offer the potential for higher returns than traditional savings options such as bank deposits.
It is important to do your own research and consult with a financial advisor before investing in mutual funds. Make sure you understand the risks and costs and choose funds that match your investment goals and risk appetite.
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