Many of us have often wondered how to invest in mutual funds & begin our long-awaited 'wealth journey'. But, what's the first step? Is it to Google "how to invest in mutual funds online" or "how to start investing in mutual funds" and follow on-screen instructions? No.
First, you must be aware of yourself and your reasons for investing. Your goals are the reason why you want to start investing in the first place. And then comes your capacity to meet them. If you know one of these two things, you have a 50% chance of meeting your financial goals. But if you are unaware of either of these aspects, you might experience market troubles.
Let us understand how to invest in mutual funds.
Understand your investment objectives and prepare a risk strategy. Risk profiling is crucial before investing. With it, you can understand your risk appetite based on your capacity and willingness to invest for your goals. Your risk appetite depends on factors like age, geographic location, income, job profile, number of dependents, health conditions and more.
You have different expenses in a metropolitan city, a tier-one city, a tier-two city and a tier-three city. Similarly, your risk appetite declines as you move closer to your retirement. Accounting for these factors and calculating your risk appetite is essential for sustainable long-term investments.
Once your risk appetite is analysed, it is time to work on why you started investing. These are your financial goals. But how are they different from dreams or wishes? Your dreams become goals when they are SMART (Specific, Measurable, Achievable, Relevant and Timebound).
Here is an example of a smart financial goal:
Suppose you want to buy a diamond necklace in two years — a short-term financial goal. But the price right now costs ₹5 lakh. So, consider that the two-year inflation rate will be around 4% each year.
The estimated value of your goal = ₹5 lakh + ₹20,000 (4% of ₹5 lakh) + ₹20,800 (4% of ₹5.2 lakh). Therefore, the actual value of your goal is ₹5,40,800. Next, comes selecting a mutual fund with a low-risk profile, which would be a debt mutual fund. Similarly, you can segregate your financial goals into the following horizons:
Goals like buying jewellery, purchasing a two-wheeler, and home renovation can be your short-term goals.
Goals like going on an international trip with family and buying a new car can be your medium-term goals.
Goals like planning for retirement planning or your kid's higher education, or marriage can be long-term goals.
Investing in mutual funds online is easier using the Fi Money app. Just set up the mandate using the FIT rules, and invest in mutual funds of your choice.
There are suitable mutual funds for each of your goal horizons. For example, you can invest in a low-risk mutual fund for your short-term goals. These can be debt mutual funds or gold funds. Your medium-term goals allow you to take a little risk. Therefore, a mix of equity and debt mutual funds can be better. However, invest in equity-based mutual funds if you have a significant risk appetite for your long-term goals.
For each mutual fund type, you will find numerous schemes offered by different Asset Management Companies (AMCs). Before choosing a scheme, consider these points:
You can compare schemes by different fund houses.
You can check for the experience of the fund manager and the performance of other schemes managed by them.
You can compare this for each scheme with that of other similar schemes.
Which companies does the fund invest in? How are these companies performing?
You can compare the underlying assets of similar schemes. By comparing these lines, you can select a mutual fund scheme.
With your goals, risk profile and suitable schemes ready, you can go ahead and start your Systematic Investment Plan (SIP). Starting your SIP with the Fi Money app is as simple as customising your coffee in your favourite cafe.
You need to sign a mandate that allows Fi Money to deduct the SIP amount from your account and deposit it in your chosen mutual fund scheme. Once your bank mandate is ready, you can set your goal's SIP amount and SIP date.
With all the above steps, you now know how to invest in direct mutual funds. Ensure that you stay invested irrespective of the short-term uncertainties like inflation, medical emergencies and more. Such financial tension points should not stop you from moving toward your goals. Use such scenarios to revisit and rebalance investments if required.
Knowledge is the base of goal-based planning. Knowing your risk appetite, goals, and then selecting a mutual fund scheme can help you become an informed investor. The answer to “how to invest in mutual funds” — starts with you and ends with your goals.
Mutual Fund investments on Fi are simple & commission-free. With its intuitive user interface, suited for new & seasoned investors, one can select from over 900 direct Mutual Funds. Plus, Fi is 100% secure as it functions under the guidance of epiFi Wealth, a SEBI-registered investment advisor. To help simplify the steps involved, you can invest daily, weekly, or monthly via automatic payments or SIPs — created with one tap. Moreover, Fi offers 100% flexibility with zero penalties for missed payments.
You can begin investing in mutual funds with a SIP as low as ₹100 per month. Even for lump sum investments, your minimum investment can be ₹5000 initially and then be any multiples of ₹1000. To start investing in mutual funds, you need ₹100 (for SIP) and ₹5000 (for a lump sum).
As a result, you do not need to wait until you have a considerable sum of money to begin investing.
Anyone can invest in mutual funds using a single lump-sum payment or a flexible SIP option online. Investing in mutual funds is simple and secure using the Fi Money app. You need to enable a bank mandate using the FIT rules. Once you have the mandate, you can set up your SIP amount and SIP date to invest in any mutual fund scheme.
Choosing mutual funds as a beginner isn't one-size-fits-all. To decide, consider your risk tolerance, goals, expense ratio, manager's experience, AMC reputation, underlying assets, SEBI's Riskometer, and fund's risk profile.