Investors can choose to invest their capital in a mutual fund as a lump sum or by choosing an SIP (Systematic Investment Plan). An SIP is a method of investing in mutual funds that helps investors develop discipline while investing and helps them start an investment at ₹100. This article will walk you through the best ways to invest in mutual funds and lay out a step-by-step guide to help you make informed investment decisions.
How to invest in mutual funds in India? Six steps you should follow:
- Use an SIP calculator to calculate your returns: Before starting your mutual fund investment journey, you should analyse the potential returns. An SIP calculator helps you estimate the future value of your investments based on your regular contributions, investment duration, and expected rate of return. You can set realistic financial goals using this calculator and choose the right mutual funds to achieve them.
- Conduct a risk assessment of your profile: You must understand your risk tolerance when investing in mutual funds. Assess your risk appetite, financial goals, and investment horizon to determine the type of mutual funds that suit your profile.
- Divide your capital into various asset classes: Allocate your investment capital across different asset classes, such as equity funds, debt funds, and hybrid funds. This diversification helps spread risk and ensures that your portfolio remains resilient even during volatile market conditions.
- Select a mutual fund after analysing its past performance: The past performance of a mutual fund can give you insights into how a mutual fund has performed in different market cycles. You must analyse the historical performance of a mutual fund to understand its consistency and ability to deliver returns in various market scenarios.
- Assess the fund manager’s track record: Select a fund managed by an experienced and skilled professional who has a proven track record of making sound investment decisions. A competent fund manager can navigate market fluctuations and optimize the fund’s performance.
- Re-assess your investments regularly: After a few years of remaining invested in a mutual fund scheme, you should re-assess your investments and re-align them if required, to remain focused on your financial goals. Financial goals can change as time passes, which is why you must keep re-orienting your investment strategies periodically.
Here is the most convenient way to invest in a mutual fund:
SIP investments are often considered as a convenient approach to invest in mutual funds. SIPs instill discipline in investors by encouraging regular contributions, regardless of market conditions. With SIPs, you buy more mutual fund units when the prices are low and fewer units when the prices are high. This phenomenon, known as rupee-cost averaging, helps you acquire more units over time. SIPs also offer the advantage of the ‘power of compounding’, helping investors exponentially grow their wealth.
Before investing in a mutual fund scheme in India, you must check the fund’s previous performance and analyse your future returns by using a mutual fund SIP calculator.