Mutual Funds: What to Know Before Investing

New Delhi: Mutual funds have become a popular mode of investment among the common people. Many people invest in mutual funds and usually contribute a small amount every month to that fund. If you haven't started investing in it yet, you can keep it as one of your top options. However, there are a few things you should keep in mind before investing in mutual funds.

What is Mutual Fund?
A mutual fund can best be described as an investment fund that pools money from various investors to buy securities. Money is invested in securities like stocks, bonds, money market instruments and other assets. Professional fund managers manage and allocate the fund's assets and try to generate capital gains or income for the fund's investors.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities, and most mutual funds are part of larger investment companies. Overall, small or individual investors can access a diversified, professionally managed portfolio thanks to mutual funds.

Things to keep in mind before investing in mutual funds
Plan properly
It is important to invest in mutual funds through systematic investment plan or SIP. Every month or every quarter, your account will be deducted from the specific account for the investment of the fund, so it is important to plan your expenses.

keep calm
Despite market fluctuations, mutual funds generally give decent growth over time. Therefore, an investor should remain stable regardless of whether the market is going up or down.

Select the fund type
Mutual funds come in various types and categories, such as equity funds, debt funds, hybrid funds and thematic funds, and you have to choose funds that match your risk tolerance and investment goals.

expense ratio
Mutual funds charge an expense ratio, which is the annual cost of managing the fund as a percentage of assets. If the expense ratio is low, it is favorable for investors as it will result in high net returns.

Consider the risks
Before investing in mutual funds, you have to consider risks like market risk, credit risk and interest rate risk depending on the category of the fund.

Tax factor
Always understand the tax implications of your mutual fund investments before investing. Different types of funds are subject to different tax treatment.

Genealogy
It is always better to invest in tried and tested funds that have stood the test of time. Make sure that the mutual fund you are considering investing in has been in existence in the Indian market for at least 15 years.