First Time Investor in Mutual Fund: Seven Guru Mantras

First Time Investor in Mutual Fund: Seven Guru Mantras

A Complete Guide For The First Time Investor in Mutual Fund

Have you started earning now? Are you thinking about starting investment? Are you planning to create wealth through mutual funds? Do you find yourself in the category of first time investor in mutual fund? If answer of any of the above questions is yes, this article is for you. The share market has remained at high levels for a while. But when the valuations of stocks are on the rise, so are risks. And, therefore, for a first time investor, it is always advisable to start investing through mutual funds. I am going to give you seven guru mantras which will prove beneficial for you while planning your investment as a first time investor in mutual fund. 


1. Why Mutual Fund?

If you are looking for exposure to share market at these levels, the best way is to adopt the mutual fund route. Personal finance experts are unanimous on this fact that MF are one of the best and safe investment instruments for wealth creation. It also helps you in tax savings and achieving your financial goals. What works in the favour of mutual funds is that these are managed by experts. These experts work on your behalf and invest your money in stocks, bonds and other securities.


2. First Time Investor in Mutual Fund: How to Start? 

To start mutual fund investment, you have two ways. First way is to open an account with fund houses and complete your KYC. Alternatively you can open a demat account to invest in mutual funds. And, to open a demat account, you have to approach a depository participant (DP) or a brokerage house which acts as an agent for you. Remember that if you invest through demat account, you will have to give certain amount as commission to your brokerage. But if you invest directly, i.e. through fund houses’ websites, you can save that commission amount. Though, for each fund house, you need to register yourself and do KYC formalities separately. As a first time investor in mutual fund, it may be a little inconvenient for you to track your investment, if you invest in more than one fund. So, its better to go through demat route.


3. First Time Investor in Mutual Fund: When to Start? 

You might be asking whether high market levels is a good time to start? You are right to ask this question as a first time investor in mutual fund. So remember that according to personal finance experts, if you have a long-term view, any time is a good time to start investment. In fact, as a first time investor, you need not worry about the stock market levels if you are looking to invest for the long term. You can’t avoid volatility in share market or, for that matter, any investment avenue. Just remember that volatility is a short term concept and it is an inevitable part of markets.



4. First Time Investor in Mutual Fund: How to Select Good MF? 

Selecting a good mutual fund out of thousands funds available is truly an uphill task for not only first time investor in mutual fund, but for an experienced one too. But I am here to make this task easy for you. There are few important points that you should remember while selecting best mutual fund for yourself. You need to ask some questions to yourself before taking a decision. These questions are:-

a) Why am I investing?

b) How much risk I can take?

c) What returns am I expecting?

d) How long will I remain invested?

If you have clear answers of these questions, your task of selecting best mutual funds for you will become easy. After answering these questions, you will be able to define your objective for investing, risk profile and time horizon. I will explain this for you by citing a few examples.

  • If you have an investment horizon of 5 to 7 years, and can take higher risk, you can invest in any equity mutual fund scheme. These scheme may be index mutual fund or diversified mutual fund.
  • If you have an investment horizon of 5 to 7 years, but can take moderate risk, you should invest in balanced mutual fund scheme. When I say say the investment horizon of 5-7 years, I assume that you will remain invested for that much period and you will not withdraw the money.
  • But if you have near to medium term goals, it will be better for you to choose debt mutual fund schemes. Near to medium term goals means that you may need money within 3 years. Debt mutual funds are considered comparatively safe and investment in these give your money growth as well as protection.
  • Alternatively, you can decide to invest in an asset allocation ratio of 70:30. It means that 70% amount can be invested in equity mutual fund and 30% can be invested in debt mutual fund. For a first time investor, this asset allocation strategy can work well.
  • One more thing which you should remember as a first time investor in mutual fund. If you want to save tax by investing in mutual fund, you can choose ELSS i.e. Equity Linked Savings Scheme funds. It would enable you to get an immediate tax deduction of up to Rs. 1.5 lakh under section 80(C) of the IT act.

Also Read: Why Mutual Fund Nomination Is Needed? 

5. First Time Investor in Mutual Fund: Fund Selection Is The Key 

As a first time investor in mutual fund, you need to remember that the investment is not only to get a higher return, it should be available at the time when you need it. Therefore, the selection of funds should be based on both quantitative and qualitative parameters. The qualitative parameters are brand of AMC (asset management company), fund managers’ experience, investment objective and style. The quantitative parameters are the past performance, risk adjusted return, performance in volatile market and expense ratio. Though past performance of a mutual fund scheme is not a guarantee of its future performance, it is one of the important factors for making investment decision.

Also Read: How Will The New MF Classification Method Help The Small Investors?

6. First Time Investor in Mutual Fund: Investment Amount Allocation

After selecting the right mutual fund scheme, you will have to decide how much you want to invest in it. You can invest either lump sum or in small amount at regular intervals according to your convenience. But for a first time investor in mutual fund, it is advisable to invest through systematic investment plan i.e. SIP. It allows you to purchase units of your selected mutual fund as per your budget at fixed intervals (for example, once a week, a month or three months). You can link SIP with your bank account for automatic debits. SIP gives you, as a first time investor, the benefit of cost-averaging and helps you to maintain a financial discipline.


7. First Time Investor in Mutual Fund: Performance review

Once you purchase the mutual funds and make a portfolio, don’t forget to monitor it. It is always better to review the performance of your portfolio at regular intervals. It would present before you the performance report of the mutual fund scheme in which you have put your money. You can make changes in your portfolio whenever you think it’s required. Personal finance planners recommend that you should review your investments and re-balance (if necessary) it, at least once in a year.


I hope that for a first time investor in mutual fund, these seven tips will be of immense help.  These mantras will help you to walk down the path of successful investing and create wealth. Keep visiting this space for more investing ideas, and don’t forget to give your feedback. You can also ask any question which crops up in your mind. I will be happy to help you, whether you are first time investor in mutual fund or not.

Leave a Reply

Your email address will not be published. Required fields are marked *