How to invest in Mutual Funds as a first time investor

Get the Basics right

Before delving into the world of mutual fund investing it is imperative that you get the basics right.

This implies getting a few things in order before going ahead.

To use an analogy, imagine the foundations of a building being solidified before the storeys are given a thought.

Insurance: Make sure you have term insurance in case you have financial dependents.

Health Insurance: Along with term insurance this is another necessity, health expenses are never cheap and inflation will always make sure the struggle gets even harder.

Emergency Fund: Always keep aside a minimum of 12 months worth of expenses set aside before venturing in to any form of investment, you never know when life decides to take a nosedive.

Goals

Before you begin your investing journey, you should chalk out your plans clearly.

These goals should be further divided based on their priority as well as their duration.

Short term and immediate goals should be prioritized over long term goals.

For short term goals it is better to stick with debt funds.

For long term goals, that is for a period of 5 years and beyond one can look at equity funds.

Within equity funds too there is a large pool of different type of schemes, a vanilla portfolio uninterrupted works wonders in the long run.

Try to increase the investment amount annually by a small margin say 5-10%, this will help you reach your goals faster.

Click Here to read about some common mistakes that investors make

Ignore Volatility

The stock market by its nature can be very volatile, this is comparatively speaking with Fixed Deposits being a reference point.

It is affected by various factors like global tensions, poor earnings posted by companies, unstable government, etc.

None of these points are in your hands, what is though is your ability to ignore such volatility.

Remember, the time spent invested in the market is far more important than timing the market, the latter is a quicksand scenario.

On the contrary one should not be discouraged by occasional bouts of volatility since it is in these volatile times that one makes money.

The stock market does not have linear growth, therefore any movement towards the downside also opens up the opportunity for upside growth.

In short, control the controllables.

Ignore outside noise

Unfortunately even today it is not uncommon to hear stories of individuals entering the market at its peak after observing ‘success stories’ of their friends, relatives, colleagues, etc.

That is an unhealthy motivation, half-baked knowledge and a very narrow understanding of success.

In a similar vein it is also not surprising to hear stories of those exiting the market at the hint of a slight correction or cause they’ve been recommended to do so by someone who’s not a professional advisor.

The issue with such cases is not just the financial loss but also the experience attached, anyone who has entered the market at its zenith and exited at a loss will be haunted for a long time, maybe forever thus even deciding to never invest in equity markets again.

It does not help that we are living during times of fanaticism, every jump and correction is dissected and presented as the next oil rig or the never ending dig to a bottom that may never be reached.

Have a goal, make a plan for it, review it periodically and stick with it only until and unless you have rational and logical reasons for the same, the only outside noise should be of a qualified and certified professional managing your investments.

Click Here to read why you must increase your SIPs annually

Invest via SIP

A sip plan in a mutual fund is a mode of investing via which you can make periodic investments into mutual funds if you do not or cannot make lumpsum investments.

The period could be:

Daily
Weekly
Monthly

Sip plan advantages

A sip plan in a mutual fund helps you:

Stay disciplined
Invest small amount gradually
Average your investments
Not worry about timing the market.

Investing in the Equity market is not about entry and exit but rather your ability to stay put even when staying put seems like a farcical spoof.

You do not need a large sum to enter or stay in the equity market, in fact there are several mediums and amounts via which you can invest the most popular of them being the SIP mode.

Irrespective of whether you can/do invest via lumpsum investments or not, it is always better to have running SIP’s since they can counter volatility and help with compounding.

Keep increasing your SIP’s on an annual basis, this will help in countering inflation and help in reaching your goal faster.

During present times, almost all processes for investing can be done online without the need for offline documentation.

The real benefits of equity investing can only be realized in the long run, money is made but wealth is created and any creation takes time.

Stay invested in the equity market and give your money an opportunity to compound into wealth.

For portfolio enquiries, email us with your doubts at info@themutualfundguide.com

Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.

Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing