personal finance

Young investor's guide: How to invest in mutual funds?


‘How to’ is a big hurdle for most young investors. We have dealt with how to choose ideal mutual funds in an earlier article. if you have missed it, you can read the story here:
A young investor’s guide to mutual funds. Now, we will deal with another important ‘how to’ we keep hearing often: how to invest in mutual funds.

Okay, how do you invest in mutual funds. Well, if you are looking for an easy way out, just walk into the office of a mutual fund advisor near you, and he would take you through the whole process. just ensure that you get good references from your friends and family. Also, do some homework before walking into the office, so that the expert doesn’t take you for a ride.

There are also many mutual fund apps and platforms that allow you to buy mutual funds through them. Some of them even offer you ideal portfolios and schemes to invest. Most of these websites and applications offer only regular plans. However, some also allow you to invest in direct plans of mutual fund schemes.

Two, you also have the option of investing directly in mutual funds. You can visit the authorized branches of a mutual fund house and invest directly in its scheme. Or you can also invest through AMC websites.

Now, the big question? Should you hire a mutual fund advisor or registered investment advisor, pay a fee or allow them to earn commissions from your investments? Or should you invest directly and save the commissions?

As you know the difference between regular and direct plans of mutual funds is the commission. Regular plans pay commissions (around 0.5% for debt schemes and around 1% for equity schemes) to mutual fund advisors. Direct plans do not pay any commissions. Many investment advisors believe that the commissions saved over the years would add up to quite a substantial sum over a long period.

Okay, that brings us to a big question asked by young investors: should I invest in direct plans or regular plans?

The answer is very simple. Do you know the basics of investing in mutual funds? Do you think you would be able to track your investments, review their performance vis-a-vis their benchmark and category at least once or twice a year. Would you be able to take hold or sell call without getting influenced by prevailing trends and soothsayers? Moreover, do you have the time and inclination to do all this? If the answer is yes to these questions, go ahead and invest directly in mutual funds.

However, if you have even a small doubt whether you would be able to do these tasks yourself, do yourself a favour and seek the help of a mutual fund advisor. Yes, we know young investors resent this advice: trust us, we do not have anything against you being a super wealth-maker. It is just that we have noticed over the years that investors, especially novices, need sometime before they can handle their finances themselves. So, work with an expert for a year or two, learn the ropes, gain the confidence, before taking the reigns in your hands. Until that day, continue with the help of an advisor.

(This article is part of a series ETMutualFunds.com is trying to create that would help young investors with their investments in mutual funds. Meanwhile, if you are a young investor looking to invest in mutual funds and have some doubts, message us on our official Facebook page or at the comment section at the end of the article.)

For the earlier article:
A young investor’s guide to mutual funds





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