Buying mutual fund for the first time? Here are 10 things you must know

By: | Published: April 3, 2017 1:52 PM

First-time mutual fund investors should understand the basic concept of mutual funds. For, every one wants to pool in one's money in certain mutual fund schemes with a view to earn high returns, but before doing so, there are many things you should be careful about.

Don not just sign the document and give it to the concerned person. You must read and fill in the application by yourself.

First-time mutual fund investors should understand the basic concept of mutual funds. For, every one wants to pool in one’s money in certain mutual fund schemes with a view to earn high returns, but before doing so, there are many things you should be careful about.

Also, if you are a beginner and want to invest in equity or debt and are ready to take exposure to financial markets, then you should choose the route of mutual funds.

Here are 10 things to know about making an investment in mutual funds:

Know about the MF scheme

Understand the mutual fund scheme in which you want to invest your money. Know all the tax implications of short and long-term gains, as per the tenure of various schemes, while making redemption of your money. Also know whether the schemes are providing you any tax benefit or not. Know the basics from your adviser or visit a website to know the ratings of the schemes on basis of returns and risk factors. Do not ever judge any scheme by its past performance.

Understand your risk appetite

MF schemes are designed for every type of investors. So, you should ask a few questions from yourself like – Is the scheme selected is suitable for you or not? Do your household liabilities allow you to invest in such kinds of risky schemes? Consider various facts which may affect your risk-taking capacity in the future before making any investment in equity, debt or hybrid funds.

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Read the offer document

Whether you are investing directly or through a relationship manager, before investing into any scheme make sure that you have read the offer document carefully. All the information is given in the scheme document. If you want further details of the fund manager, then you must refer to the statements of additional information provided for each particular scheme on the AMFI website.

Fill in the application form

Don not just sign the document and give it to the concerned person. You must read and fill in the application by yourself. Understand the clauses like the joint holder or nominee you want to assign with your investments. Understand the differences between them. Also, the term period you are opting to run your SIP, and so on.

Select scheme options

One of the most important things to understand while going through a direct or regular plan is the scheme option you are selecting. People who want to get only capital appreciation after a certain period of time should go for the growth option, while those who want to get dividend payouts at certain intervals should opt for the dividend option. You can also reinvest your dividend payouts.

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Get you KYC done

This process helps in maintaining the identity and address proof of investors by the advisers and the mutual fund companies. The process of being a KYC compliant investor is done during the time you are filing your mutual fund documents. Make sure you have gone through the same process. However, the e-KYC done through UIDAI is also a valid process for being KYC-compliant.

Timely submission of form

For every purchase investors are allotted net asset value (NAV), and that NAV helps them grow their money. While making a lump sum investment, one should time the market. Submitting the form on right time when the market is on downside helps you get better returns in the future. However, the investment made through the SIP mode does not require you to time the market as the NAV gets averaged out over a period of time and you earn a decent return.

Read your fund factsheet

Most importantly, read fund factsheet which is provided to you by AMCs at regular intervals. Understand the forthcoming deviations and market volatility structure mentioned in the sheet. This will help you in getting acknowledged with the returns you may likely to get in the future from your investment made in that particular fund.

Link investments to a financial goal

Right from the beginning, make it a habit that while making any investment through mutual funds, you will link your investments to a particular financial goal and thus, plan to choose your fund schemes accordingly. This helps you to time frame the redemption of the appreciated capital you have achieved over a particular period, which is nothing but your financial goal’s time period. This also helps you to know how much amount you need after that period of time.

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Review your funds

Once you have invested your money in a scheme, do not forget to review the scheme semi-annually or yearly as per the time horizon of your financial goal. This is an important process which helps in sustaining your investment returns over that prolonged time-frame. To achieve a healthy return on your portfolio, you should take proper guidance of an investment adviser who will guide you in doing proper asset allocation, if required, from time to time.

If you have any difficulty in not getting any support from the AMC or any other body, then in such a case you may directly lodge a complaint with SEBI.

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