Mutual funds are easily one of the best ways to invest in the stock market. By investing in a basket of different stocks, you can effectively reduce your risk, while simultaneously increasing your chances of getting positive returns. If you’re planning to open a mutual fund account online in the near future, it is crucial for you to know how to invest in mutual funds first. Continue reading to find out.
When it comes to investing easily in a mutual fund, there are three different ways through which you can do it. Let’s take a look at each one in detail.
Your financial goal is an important factor that can help you invest in the right mutual fund. The goal can be anything from saving up for your retirement to saving up for a car. So, the first step that you would need to take before planning to open a mutual fund account online is determining your financial goal.
Once you’ve done that, you can then proceed towards determining the best mutual funds to invest in. For instance, if your financial goal is to purchase a home, you can consider investing in equity mutual funds. With equity funds, you get the chance to generate higher returns, which can help you get to your goal much faster.
Alternatively, if your financial goal is to save tax, you can consider investing in tax-saving funds. The amount of investment that you make in these funds can be deducted from your total taxable income to the tune of Rs. 1.5 lakhs in a financial year. This way, you can effectively reduce your overall tax liability, while still being able to generate higher returns.
Your risk appetite is another one of the many factors that you should consider when you’re planning to invest in a mutual fund. Depending on your risk profile, you can either be a conservative investor, a moderate risk taker, or a risk aggressive investor. If you have a high-risk appetite, you may be able to tolerate more volatility in your investments. However, if you have a low-risk appetite, you may want to choose funds with a lower risk profile. You can use a CAGR calculator to estimate the returns you could expect from a mutual fund over a specific period of time, given your risk appetite.
Conservative investors typically shy away from risky investments like equity mutual funds and tend to gravitate towards debt funds, which are far safer and provide stabler returns. A moderate risk taker, on the other hand, prefers to have an equal distribution of risk. Hybrid mutual funds that invest in both equity and debt instruments are the ideal investment options for this class of investors. And finally, risk aggressive investors have no problem taking on risk and are well-suited for pure equity mutual funds.
In addition to your financial goal, your mutual fund investment should also mirror your risk appetite. This way, you would be able to enjoy more success and can generate returns that are on par with your expectations. A mutual fund calculator can be a helpful tool for investors who are unsure of their risk appetite. By entering some basic information about your financial situation and investment goals, the calculator can generate an estimate of your risk tolerance.
The best way to invest in a mutual fund is through a Systematic Investment Plan (SIP). In an SIP, you’re required to make small investments regularly in a mutual fund of your choice for a certain period of time.
This allows you to effectively combat market volatility and reduce the chances of losses significantly. And when done for a long period of time, an SIP can produce higher returns than if you had invested a lump sum in a mutual fund.
Now that you know how to invest in mutual funds easily, go ahead and open a mutual fund account online right away. You can get in touch with Motilal Oswal to open a demat account and a trading account if you don’t have one already.
That said, before you go ahead with your investment, make sure that you spend some time researching the best mutual funds to buy today. Doing so will allow you to get closer to your goals in a much shorter time frame.
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