Planning to invest in mutual funds? The earlier the better!
Young investors have an advantage since the longer you stay in the market, your investments become less risk-prone
November 28, 2017 / 17:01 IST
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Investing in mutual funds (MFs) is the best option for those who want to take advantage of the capital market to create wealth. The earlier you start, the better it is. Young investors in their 20s or 30s can take the benefit of rolling returns while investing money for a longer period of time. Here are 5 things which a young investor should keep in mind before investing in to MFs:
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Define A Purpose | If one wants to gain from mutual funds then they should invest with a definite purpose. For example, invest money towards a financial goal like wedding planning, child education, retirement or overseas vacation. This will help them in making dedicated savings for their long-term financial goals.
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Holding Duration | As a young investor one should know the holding duration of any MF categories (for e.g., liquid funds, debt funds, equity funds, hybrid funds, etc.) while investing their money in mutual funds against any financial goal.
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Know Your Fund | Every category of funds have their own risk associated with them as per their holding period, where failing to invest as per the benchmarked time horizon, one may lose money instead of making good returns. Therefore, one should keep few things in mind to make a good amount of wealth in long run.
Benefits of SIP | There are two ways to invest your money in MFs. It can be done through lump-sum mode where you need to invest your money in one go or else, go for a SIP mode where you can invest on a weekly, monthly or quarterly basis. Doing a SIP does not require timing of market and also helps in doing investments in a disciplined manner which overall becomes less risky for young investors to start their investments towards long-term financial goals.
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Power of Compounding | Young investors have an advantage in investing since the longer you stay in the market, the less risky your investment becomes and the more corpus you can generate over a period of time. This happens because of the compounding effect and the rupee cost averaging benefit you get over a long term.
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Market risks exist | As far as safety is concerned, mutual funds can be considered as a safe investment avenue only in terms that they are regulated by SEBI. And each company needs to maintain a minimum net worth to set up an AMC. However, the investment made in any of the schemes are subjected to market risk. You should always have clarity about the scheme that you are investing in by reading the offer document before making any investments.
