Mutual Funds – Beginners Choice

Mutual Fund Basics

Mutual Fund Basics

Mutual Funds – The Beginners Choice

Most people are afraid to invest in the stock market. After all it is their hard earned money. They would rather do with lesser growth of their savings in a bank fixed deposit than risk to lose it all by investing in some stock. Haven’t we heard about all those scams and those fly by night operators who are just waiting in the wings to rip you off your money! The dot com bubble and the Harshad Mehta, Ketan Parekh scam era are still rankling in the memory of people, many of whom lost money in stock market.

equity ( mutual ) funds. These funds are managed by professionals who know and understand the stock market better than a lay person. Mutual funds are slowly and steadily emerging as an effective vehicle for a lay as well as a sophisticated investor. It is amazing to see the way more and more investors are including equity funds in their portfolio. However, there are many investors who have been watching from the sidelines and have yet not taken the plunge. There are many fears that pose a dilemma to these investors. A first time investor needs to understand that every investment carries certain degree of risk and the potential to earn is directly linked to the degree of risk taken. For a long-term investor, it is essential to ensure that he earns positive real rate of returns i.e. rate of return minus inflation. Equities, as an asset class, have the potential to achieve this. No doubt, equity markets can be volatile over the short-term and that makes equity funds a risky proposition in the short-term. However, it is also a proven fact that over the long term the stock markets provide better returns compared to other asset classes.>

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The good thing about Mutual Funds investing is that the risk can be minimized by adopting a proper strategy to invest as well as by building a portfolio of quality equity funds. On the other hand, a haphazard approach to investing as well as selection of funds can put one’s hard earned money to risk. Therefore, an investment in an equity fund should be made essentially for the long term and not to become rich overnight. It is quite common to see many new investors getting carried away with the euphoria in the stock market and taking extra-ordinary risks. The most important thing is to understand the consequences of your decisions and do not allow emotions to dictate them

The current level of the market at any point of time should not deter a long-term investor from making a beginning. That’s because investing in equity funds is a process and not one time activity. The best way to benefit from equity funds is by investing on a regular basis and to have a long-term view.

It is a misconception that you need large sums of money to start investing in mutual funds. You don’t need large sums of money to begin your investments. Your investment can begin with as little as Rs. 500. The key, however, is that to make this humble beginning into something meaningful, one need to invest on a regular basis. That’s why; a Systematic Investment Plan (SIP) can be the perfect option for a beginner. Once you enroll for SIP, it is important to continue with that for years and even increase the amount as and when you are able to do so. Remember, equity funds are your best bet to build a lump sum to achieve any of your long-term investment objectives like buying a house, to provide for a child’s education and to ensure a comfortable retired life. While you may experience lots of ups and downs during this long period of investing, you need to carry on.

While one of the major advantages of investing in mutual funds is the variety of funds that are available to investors, it can be quite a daunting task for a new investor to select the right ones. A new investor should begin with diversified funds. In fact, large cap funds can be an ideal way to start and then gradually other funds like mid-cap, specialty and sectors funds can be included in the portfolio. Investing in existing funds, rather than the New Fund Offerings can be a good idea. Remember, existing funds have a track record and a portfolio to ascertain the quality and the future prospects.

There are many sources like individual and corporate advisors, banks and web sites that can help you invest in mutual funds. To find out a mutual fund dvisor in your area, you can visit the website of Association of Mutual funds in India (AMFI) www.amfiindia.com and access information about advisors in your area. However, it is always advisable to do some due diligence before finalizing one. After all it is a question of entrusting you hard earned money to someone for the long-term. If you are investor waiting to invest in equity or mutual funds, the sooner you begin investing the better it would be for the future of your money.

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