There are plenty of different investment options in India. Whether you are a beginner to investments or a seasoned investor, it is important to learn how to diversify your portfolio. And mutual funds can help you achieve portfolio diversification almost effortlessly. By simply investing in mutual funds online, you can reduce your overall portfolio risk.
But to understand how to become a better mutual fund investor, it is necessary to begin at the basics.
A mutual fund is an investment vehicle that pools together the capital from different investors. Those funds are then used to invest in different assets such as equity stocks, government bonds, corporate bonds, money market instruments, gold, real estate or any other asset class.
Based on the nature of assets that a fund invests in, and the tenure of investment, there are different types of mutual funds, such as —
Since each mutual fund invests in different kinds of assets, it is inherently diversified. For example, an equity mutual fund does not invest in just one single stock. Instead, it invests in a basket of different equity stocks. That’s not all. It will also have a minor debt component to off-set the risk. This makes mutual funds good investment options for diversification.
If you want to invest in mutual funds and become better at this, here are some tips to help you.
Before you invest in mutual funds online, you need to have a clear investment goal. That way, you can choose investments that align with that goal. For example, if you want to start investing today to save up for an international vacation next year, you may want to choose a short term mutual fund that has an investment period of 1 to 3 years. On the other hand, if you want to save taxes, a tax saver mutual fund may be a better option for you.
An SIP or a Systematic Investment Plan is an investment strategy wherein you invest small sums periodically in the mutual funds of your choice. If you do not have a lump sum amount to invest today, you can still make mutual funds a part of your portfolio by starting an SIP online.
An SIP allows you to invest in the market without worrying about timing it. In other words, irrespective of the highs or lows in the market, you can continue to invest small sums as low as Rs. 500 on a monthly or quarterly basis.
Different mutual funds come with different levels of risk, based on the assets they invest in. Equity funds, for instance, are riskier than debt funds. Even within equity funds, some may carry lower risk than others. So, choose your funds as per your risk tolerance levels.
With these pointers, you can become a better mutual fund investor. But to truly get started with investing in mutual fUnds, you need a demat account. If you do not have one yet, you can easily open a demat account with Motilal Oswal online, and start investing for your future.
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