An equity mutual fund investment is looked upon as one of the prudent ways to form a corpus over the long run. While investing in a mutual fund is easy, there are still certain important pointers that you must factor in before you begin your investment journey. Here are the 5 things you must consider before investing your surplus investible in a mutual fund.
Plan it out
Investing in an equity mutual fund through the SIP (systematic investment plan) route is a crucial financial decision. At a predefined interval, a specific amount is debited automatically from your bank account and invested in the mutual fund of your choice. Hence, it is crucial to plan your expenditures and make sure that on a specific date, there are adequate investible funds in your account for automatic deduction of your mutual fund installment.
So, here you may keep your surplus funds in your bank account for a bit-by-bit deduction from your account. This way, you may avail not just the benefit of rupee cost averaging but also generate higher returns through the compounding effect if you keep your funds invested for a long term of 5 years and above.
So, what’s the correct time to make a mutual fund investment? Is it when the market is sinking or when it is soaring? Actually, both. Mutual fund investment is about patience and discipline. Regardless of the fluctuations in the market, a mutual fund may offer you decent returns over a long time period. It is possible owing to the rupee costaveraging feature offered by an SIP. As your investment amount through the SIP remains the same in each installment, the mutual fund units bought varies depending on market fluctuations. A higher number of units are purchased when market prices decrease while fewer units are purchased when market prices rise. Via such a mechanism, your investment cost automatically is averaged with no need to monitor the movements in the market and time your investments. So, go for the SIP route to invest in a mutual fund. Doing so, will inculcate financial discipline and propel you to cut down on your avoidable expenses to meet the SIP commitments on time.
Assess NAV but do not consider it to be a deciding factor
You may go through the fund’s NAV (net asset value) before making your investment in a mutual fund. The idea here is that a mutual fund with a lower NAV may provide higher growth, while the one with a higher NAV may provide lesser growth. While NAV plays an important role, it must not be the only deciding parameter for you to invest in a specific mutual fund. There are quite a lot of factors that you must pay attention to. A few include the fund’s past track record, fund management strategy, and terms and conditions in the fund’s SID (scheme information document), KIM (key information memorandum) and brochure.
At times many investors do not take advice on important financial matters owing to the lack of privacy or trust. However, when it comes to investing your lumpsum funds in mutual funds, it is always great to conduct a background check and take good advice. There are various experienced financial advisors that can provide you with help as well as guide you to plan out your investment or financial strategy and make it work.
Ways to Invest
Once you have zeroed in on investing in any mutual fund and planned various things out, it is time to put the same into action. There are several ways to invest in a mutual fund, like, you can purchase directly from the mutual fund houses or buy it from any distributor, financial planner, or bank.
Investing in equity mutual funds is all about patience, discipline, and a long wait. Once you have mastered all these 3 factors, you may be able to generate exceedingly higher returns and meet your financial goals faster owing to the power of compounding in SIP mutual funds.