So you want to get into mutual funds investments, Right? Well investments with clear thinking is a great way to generate passive income for you. Read this post to have clear understanding to start mutual fund investments.
I discussed about efficient ways to get financial independence. Having a passive source of income becomes very necessary in todays scenario.
You probably know about investment in Stocks. Investors directly buy and sell stocks of some companies they trust. It possess high risk since your return depends upon performance of a single company. Your return here will depend on how that company performs.
With mutual funds you have much lower risks because instead of investing in single company you are investing in a pool of companies. Your return is decided by the performance of these companies. So a mutual fund collects money from its investors and invest on a pool of companies on their behalf.
A term you would have heard (in case you searched about mutual funds), called Asset Management Company(AMC). These are companies that decides where to invest money collected from individuals. The decisions are made by Fund Managers of that AMC based on the goal of the Mutual Fund.
Types of Mutual Funds
- Equity Funds: These type of funds invest in Stocks. As a result they have higher returns as compared to other type of mutual funds. However they have mid to high risks based on type of stocks selected. Type of stocks that can be invested include:
- Small Cap Stocks: These are generally companies which are in developmental stage or are startups. There is a very high risk associated with them as they do not have any market presence. They returns will be very high if they became successful otherwise you will end up losing all your money.
- Mid cap Stocks: Their Market Capitalisation is in between Small Cap and Large Cap stocks i.e 5,000 Crore to 20,000 Crore. They have lower risks as compared to Small Cap stocks. Due to the balance in returns and risk, mid-cap stocks are mostly preferred by most individuals.
- Large Cap Stocks: These are stocks of well established companies. Market capitalisation of these companies is very high i.e above 20,000 Crore. Due to their strong hold on market, they have low risks as compared to other type of stocks.
- Balanced Funds: These invest in both Stocks and fixed income securities. This is done to minimise the risk and make provide a surety for minimum return an investor can get in worst case. Returns in this case are generally lower as compared to Equity funds.
- Fixed Income Funds: These funds give a fixed interest rate on your investments. In India Fixed Deposits (FD) and PPF are some examples oaf Fixed Income Funds.
- Index Funds: The returns of these funds depends on the performance of a particular Index e.g Sensex or Nifty. They track the performance of particular index. Here cost for investing is low as funds managers need not do lot of work. It is automatically decided by performance of particular index.
How to Start Mutual Fund?
Ways to buy Mutual Funds:
- Buying directly from Asset Managements Companies. You directly need to go on one of the AMC website and register yourself. After you register you will need to submit some documents like PAN and ADHAAR. Then you can start mutual fund investment. The best thing about investing directly is that you save on small cost you pay to brokers.
- Buying from Apps or Websites which buy funds from AMCs on your behalf. In past few years many websites and apps have arrived which can buy funds for you from AMCs. In present scenario this is the best way to invest. I will discuss about it later in this post.
- Buying through a broker who will invest on your behalf. I will not suggest this because now you have better alternatives to that and you will also save the brokerage cost.
Buying Mutual Funds from Websites or Apps like Groww
With increase in internet users, the part played by brokers is now replaced by Apps and websites. These websites lets you manage all your mutual funds. They will purchase funds on your behalf from Asset Management Companies. They have cool graphs and other information that lets you select right funds as per your goals. These are best ways to start mutual fund investment.
Due to competition among these app they give us same interest as that given by AMC directly without even costing for their services. Many of them allow us to purchase direct mutual funds where we do not have to pay any brokerage.
To summarise why TODAY is the best time to invest in mutual funds through such apps:
- Investing free of any service charges due to competition among them.
- Single point to manage all your mutual funds. You need not create and remember passwords for each AMCs.
- Lets you invest in Direct Mutual Funds.
- Easy withdrawal and SIP cancellation.
- Graphs are others information to help you choose best mutual funds as per your needs.
Hope you enjoyed learning about mutual funds and how to start mutual fund investments. Feel free to share your thoughts below. I will be happy to help you.