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How to Invest in Mutual Funds and Its Advantages
Mutual funds are like a pool of money collected from many people who have a similar goal of investing. This money is then managed by professionals called fund managers who decide where to invest it. The advantage for individual investors is that they do not have to worry about selecting and managing investments themselves.
How to invest in Mutual Funds?
Investing in mutual funds can be done by following a simple method:
Understand your investor profile: Determine your risk tolerance level and investment goals. This will help you decide how much money you can invest and choose a mutual fund that aligns with your profile.
Choose the right mutual fund: Select a mutual fund category based on your investment objectives, such as equity, debt, or hybrid funds. Within each category, consider factors like the fund's track record, performance in different market conditions, and expense ratio.
Set a suitable investment duration: Determine how long you plan to invest. Longer timeframes generally offer higher returns but also involve higher risks. Have a specific financial goal in mind to help guide your investment decisions. Compared to fixed deposits (FDs) and Public Provident Fund (PPF), mutual funds are often a wiser choice.
Investing in mutual funds
KYC (Know Your Customer) is a process where investors provide certain documents to mutual fund companies to verify their identity and evaluate their eligibility to invest. The documents typically include a filled form, PAN card (Permanent Account Number), and proof of identity and address such as Aadhar card, Passport, Voter's card, or Driver's license.
Completing the central KYC (CKYC) process means that you only need to submit these documents once, and they will be valid for all your future mutual fund investments. Many mutual fund companies assist investors in completing the CKYC process when they invest through them.
TYPES OF MUTUAL FUNDS
Here is a brief explanation of popular types of mutual fund (https://www.libordbroking.com/
Equity funds: These MFs invest in company stocks/shares, carrying higher risk and potential returns depending on the market performance.
Debt funds: They invest in bonds, debentures, and government securities, providing a lower-risk option for investors with assured earnings.
Money market funds: These funds invest in liquid and short-term investments like Treasury bills and commercial papers, suitable for parking surplus funds for moderate returns.
Index funds: They invest in securities that mirror a specific market index, aiming to generate similar returns to the index.
Income funds: Income fund MFs invest in income-generating instruments such as bonds and debentures, offering a fixed income source for investors.
Speciality funds: These mutual funds focus on specific sectors and market segments to generate higher returns.
Balanced or hybrid funds: These funds invest in a mix of asset classes to achieve a balanced risk-return profile.