Fundamentals of Mutual Funds- Series 2
Invest with ease: Autopilot your investments with Mutual funds
Good day, Readers.
Welcome to this week's newsletter, " We Weekend ".
I'm sure all the readers are enjoying it and learning a lot, and the next newsletter will cover everything you need to know about mutual fund investment.
In the first part of this Series 1, "The Fundamentals of Mutual Funds," I discussed the basic concepts. Those who haven't read.…follow the link 👇
Fundamentals of Mutual Funds- Series 1
Today’s topic is mostly about learning new concepts or terms.
It came to me that if I used jargon or difficult language that common people couldn't understand, Then it wouldn't serve the purpose of my agenda or goal to teach everyone the simple investment process in mutual funds. But I will try to explain them in plain English instead of using jargon.
➡️ Let’s recall what we learned :
☑ What are “Mutual funds?
☑ Who are the Asset management companies?
☑ How do AMC and fund managers manage the mutual funds?
☑ When you invest, you get units in return in an online form.
☑ The concept of NAV, which we covered, is also important. Buying and selling mutual fund units was a different topic, from the example we covered.
☑ SEBI will be the regulator that watches and monitors the entire mutual fund industry, and there will be transparency.
I hope you were able to get the information you needed, and if you want to go back and look at previous articles to understand them, you can always do that by clicking here ➠ Fundamentals of Mutual Funds- Series 1
Minimum Amount to Invest
Before I answer, I want you to consider whether or not you have the money or the capacity to make an investment. Not everyone is suitable for investing in real estate, gold, or even direct stocks.
Use real estate as an example. The amount needed to invest in this asset is huge, and the investment risk is also high. Is the reward you would get worth the risk? Ask yourself this question, and again, for gold, you will look into the price of gold and the amount of money you are spending.
This means that investing in such things is for smart people who know how much they are actually worth. For newbies like me and you, it’s better to stay off these investments if you don’t understand.
As a result, Choose the easiest or simplest option, which is mutual funds, and you can start investing with as little as Rs 500-Rs 1000. Unlike stocks, you do not invest Rs 1000 in a single stock. Instead, you are diversifying your portfolio of stocks by investing in 10 or more companies.
For this reason, investing in mutual funds is a lot simpler than you might think.
✅ Investing regularly is the key to financial success
I have previously emphasised to many of my friends, readers, and those close to me that in order to build wealth, one must be consistent, disciplined, and show commitment on a regular basis, and that failing to do so will defeat the purpose of investing in the first place. You can't take advantage of compound interest by investing once.
To be regular and constant, no other asset has the option to set aside that sum of money every month for the investment.
However, there are two ways to invest in a mutual fund: regularly (via an SIP) or occasionally (with a lump sum investment or one-time Investment).
🟢SIP or Systematic Investment Plan.
Therefore, you decide how much you want to invest each month, and you can do this automatically by deducting the amount from your bank account each month, just like an EMI. However, unlike an EMI, the money you invest in a SIP belongs to you and helps you build wealth.
⛔With a lump sum investment, You may invest all of your money into a mutual fund all at once. However, you may also miss out on potential gains from the market's ups and downs.
But with SIP, you get more than just consistency. To take advantage of market volatility, it adopts a rupee cost-averaging strategy.
Basically, this strategy gets rid of all the time you have to think about whether it's a good time to enter the market.
When the market is down, you can buy more units. When the market is up, you can buy fewer units. Rupee-cost averaging is a good way to build wealth for both new investors and those with a long-term view.
So, put your savings for the future on autopilot with SIPs every month.. ✅
In the next edition, you can expect more details regarding SIP investments.
Can the money be withdrawn at this time?
With mutual funds, you can take the money out whenever you want, unlike with real estate and gold, and make sure it is an open-ended mutual fund scheme, which means there is no lock-in time and it is very liquid.
If you're investing to build wealth over the long term, taking money out too soon can defeat the purpose and goal of your investment. Otherwise, it's safer and easier to get out whenever you want.
What are the costs?
Asset management companies as well as fund managers professionally manage mutual funds. Of course, they put in a lot of effort using their expertise, knowledge, and skills to find valuable stocks.
Hence, every year, you have to pay a certain percentage of your investment amount. This is known as the "expense ratio."
The expense ratio is used, among other things, to pay the salaries of fund managers, employees of mutual funds, and commissions to their agents.
Depending on the type of fund as well as the scheme, the expense ratio will range between 0.1% and 2.25 %. In most cases, it will be less than 2.25 percent.
Please remember that you won't be able to see these expense ratio charges when you make your investment. Take this scenario, where the fund earns a 7% return. But if the fund has a 1% expense ratio, 1% will be taken out, leaving you with a 6% Return.
Now that you know what mutual funds are, you may be wondering: Which are the best mutual funds to invest in? I believe that there are currently over 1000+ mutual fund "schemes" available to investors, and new mutual fund schemes are introduced every week or every month. But finding the best mutual fund for your risk tolerance, investment goal, and time horizon should be a top priority.
Not to worry, though; I'll guide you on how to zero in on the best mutual fund.
That’s a wrap!
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