The basics of investing in Direct Mutual Funds

Read on to find out some basic answers to some basic questions about Mutual fund investments.

Size of Investment: The amount you invest in Mutual Fund should be according to your Pocket Size. Do not decide the amount on any other criteria.

Type of Investment: You may investment in Equities or Debts or choose a balance between both. That is you can invest in Equity-oriented, Debt-oriented funds, Dynamic funds or Balanced funds. Choose an investment which suits your income requirements and risk taking capacity.

Analysis of Investments: Analyse the various plans available by yourself or take help from financial advisors like OroWealth before investing. Also remember to analyse the performance of your Investments in Direct Mutual Funds and take corrective action.

Speed of Wealth Accumulation: “Mutual Fund Investments are subject to Market Risks.” Do not expect to become rich in no time. The speed at which your fund grows depends on market conditions. Such investments are a secondary source of income. Keep an eye on your investments to make sure you do not lose your hard-earned money.

Diversification of Investments: Investments should be diversified. One should invest small amounts in different types of funds instead of investing all money in same or similar funds. This reduces the risk and increases the returns and helps in wealth creation.

Mutual fund classification based on the investment period

The mutual fund industry of India is a less spoken and little understood industry in India. Less than 10% of our households consider mutual funds as an investment option, based on reports. Due to the technicalities surrounding the mutual fund industry, ever changing stock market and hawk eyed commission agents, it is considered as a high-risk option.

That is the reason why several industry bodies are focusing towards investor education. Armed with basic information on the types of mutual funds, investors realize that these are perhaps one of the most flexible, comprehensive and rewarding modes of investments and can accommodate all types of investor needs.

Various types of mutual funds categories are designed to allow investors to choose a scheme based on the risk they are willing to take, the investable amount, their goals, the investment term, etc.

Depending on the number of days or time period one is interested in investing, the types of mutual funds are divided into three categories

I. Open-Ended - Open ended scheme of mutual funds allows investors to invest, but our sell units at any point in the scheme period. These mutual funds do not have a fixed maturity date.

II. Closed-Ended - Close ended schemes have a pre decided maturity period or time period. The rule says that investment can be done only during the initial launch period of the scheme, also known as the NFO (New Fund Offer) period.

III. Interval - It is a combination of closed and open ended schemes, it allows investors to invest and trade at pre-defined and fixed intervals.

Direct mutual funds - A reliable option to invest your money

For Many people Savings means Fixed Deposit or Recurring Deposit in a Bank or Post Office. But there are other options where investing your savings can help you earn more than Interest on Deposits.

Gold Bonds/ Public Provident Fund/ National Savings Certificate: These are issued by the Government of India, are completely safe and give good returns.

Insurance policies: Investing in Insurance Policies indemnify you against loss of life and property and also give risk free returns.

Debentures: All limited companies issue debentures. These are actually instruments of debts, that is, you give a loan to the company and earn interest thereof. These debentures can be redeemable, loan will be repaid by the company at the end of the said period.

Equities: These are also issued by limited companies. When you buy shares, you become owners of the company to the extent of your shareholding and are eligible for a share in profits called Dividends.

Mutual Funds: These are pooled funds of various small investors, which are then invested into Debentures and Equities, the ratio depending on the risk taking the capacity of the investor. They are also subject to Market Risks, but being managed by experts, the risks are marginalized. However, a study of various schemes is required before investing.

Direct Mutual Funds: They are same as Mutual Funds but with the difference that no distributor/agent is used, i.e. the investor directly invests in Mutual Funds thus saving on distributor fees/commission. This results in increase in profits due to reduction in expenses.

A word of caution : Do not to put all your eggs in one basket. Do not invest all your money in any one company or scheme. Study all available options and choose the one which gives requisite returns in the time you are aiming with the risk you can handle.