What are the things one need to keep in mind before investing in mutual funds?

If you are looking to invest in capital markets and create wealth with comparatively low-risk exposure than the stocks, investing in mutual funds would be a smarter choice. Moreover, it’s important to start earlier as it helps you earn and save more in the long run while lowering your exposure to the equity markets. When I started investing in mutual funds, there were a few things I had in mind:

Know Your Goal

You must have a goal in mind before you plunge into and wish to make a profit from mutual funds. For example, you may want to invest for short-term goals like buying a car, or for home renovation, and for long-term goals like child’s education, marriage, or for retirement purpose.

Lock-In Period

If you are first time investor, it’s crucial for you to know the lock-in period or the holding period of the different types of mutual funds viz., equity funds, debt funds, hybrid funds, liquid funds, and more. The risk associated with the funds varies based on the lock-in period. If you fail to invest as per the standard time period, you may end up losing money than making profits.

Get Introduced to SIP

SIP mode of investment is for those who are unable to invest a lump sum money in one go. You can invest your resources on a weekly, monthly, or quarterly basis as per your requirement. This is a less risky alternative to those who are new to the market but want to earn.

Learn the Compounding Concepts

The sooner you start investing, the longer you stay in the market and you get more opportunities to earn and this happens due to the compounding effect. This results in good yields for those who stay invested for long.

Be Aware of the Market Risks

Given that MFs are regulated by SEBI, it can be considered safe in comparison to investing in stocks. However, you must be aware that the investments made in any of the schemes is subjected to market risk.