Importance of Mutual Funds for the Youth

WHAT IS MUTUAL FUND?

Ever thought about what is Mutual fund or how they work? Think you have Rs 500, and you head out to a restaurant for dinner. Currently you can try one or two dishes on the menu, there is no guarantee that you would like them, and you cannot order more dishes or be able to finish them once they arrive. But what if, you go to the same restaurant with 5 of your friends? Now you can order 5 times the dishes at the same price per person. To add to this, your steward is an expert at what dishes are the favorites at the restaurant considering he works/eats there every day and will help you order only those. Even if you end up not liking a few dishes, chances are you would like the others owing to the options at hand! Therefore, eating in a group at the restaurant is more beneficial than eating alone. This is the funding principle of Mutual Fund. A mutual Fund pools small investors and invests the collected money into shares, government bonds or other financial instruments in order to gain returns for investors. Mutual Funds are run by money managers who invest the pooled money on behalf of the investors, they are qualified professional experts and are regulated by SEBI. You don’t need to have mutual friends to invest in Mutual Funds, all you need is a small sum of money, a little risk taking potential and you are set!

SMALL START, FINISH BIG

You might not be too keen to put down a large sum of money to invest in the mutual funds market. There is nothing to be afraid about, not everyone is or not everyone can. A smarter, safer, and more disciplined method of investing into mutual funds is via a SIP. A SIP or Systematic Investment Plan is a way to invest a fixed amount of money in mutual funds, periodically, monthly, quarterly, or semiannually. SIP’s offer growth over a long term- you would be able to reap the benefits of these by the time you actually need to, to study abroad or buy a really expensive car.

STEPS TO INVEST IN MUTUAL FUNDS

STEP 1: Apply for a PAN Card and open a bank account. This is a must. Approach your local bank branch to help you with both these tasks, will guide you through the procedure.

STEP 2: Choosing a mutual Fund- there are many resources including magazines, websites and finance journalists that shed light on the portfolio of a scheme, past performance, fund managers and more. These can be analyzed to first shortlist the ones that seem more attractive, ideally with a low-risk rating.

STEP 3: Choose a broker/ Distributor- You need a broker in order to invest or sell mutual funds. A quick search on Google can help find one.

STEP 4: Investing a mutual fund is just the beginning. Tracking and following up on your fund’s performance is regularly vital. This step allows you to make a conscious entry/exit decision.

EXPERT SPEAKS: Investing in mutual Funds can be daunting. Here is an expert view on how you can start investing young: “Invest early, invest regularly and don’t let the price fluctuations bother you, if a mutual fund’s value falls, this presents an opportunity to buy units at a lower price and capitalize on the price rise in the future!”