Parameters for investing in Mutual Funds Directly

Parameters for investing in Mutual Funds Directly

Mutual fund is a pool of money invested by many people for long term profit.

Usually, when this investment is done through an agency, distributor or online portal, they deduct commission from the amount you would like to invest, and only the balance is invested in a mutual fund. Though the commission amount is not very high (1%-2.5%) if the amount invested is high the amount of commission in Rupees rises.

Similarly, if the period of investment rises, the commission rises and this amount in absolute terms can be quite high. An investor can get returns on this amount too by investing directly in Direct Mutual Funds and thus saving the charges levied as commission.

Of course, this saving is directly proportional to the commission. The benefits of direct investment will be greater in such funds where the commission charged is higher or on a recurring basis. Moreover, more benefits will accrue from direct investment only if the amount being invested is high.

While selecting a plan due to importance should also be given to the performance of the fund, its ratings, the risks and returns involved and its suitability to your reasons for investment. The lock-in period and liquidity of the fund are also to be considered.

To sum up, it is important to analyze the benefits of different funds on the following parameters before investing directly in any mutual fund:

1.       Amount to be invested.

2.       Period of investment.

3.       Risk to Return ratio.

4.       Lock-in Period

5.       Liquidity.