Top tips for investing in mutual funds

Mutual funds are fast becoming the go- to investment option for many people today. This kind of investment collects funds from the investors who have the same financial objectives and the money is invested in a portfolio of assets that have a properly demarcated investment goal. There are many types of mutual funds schemes out there and it can get a little overwhelming for a first time investor.

Key things to know before investing in mutual funds

Good Research: It is imperative that one prepares well and does proper research before investing in mutual funds. Talk to a financial advisor and set your financial goals- Is the money to be invested for your retirement? Is it for any other short-term goal? What is the period of time for which you want to invest the money? These questions will help you in setting your financial goals.

Have a clear idea of your risk preference: The reason why many shy away from mutual funds is the risk factor involved in these investments. However, it is important to understand that all investments are risky to a certain extent. It is up to the investor to decide how much risk he/she is willing to take.

Get an idea of the various types of mutual fund schemes: There are quite a few mutual fund investment schemes out there. These schemes are mostly divided on the basis of a few parameters like the objectives, asset class, investment pattern and so on. It is important to compare investment schemes and understand the basics carefully prior to zeroing in on any specific mutual fund scheme.

Determination of Asset Division: Depending on the amount of money you are willing to invest, you need to allocate it into various asset classes like real estate, bonds, shares and the like. Diversifying the investment across multiple channels will mean lesser chances of losing money and spreading out the risks evenly.

Start with Scheme Selection: Once you have a clear idea of the various investment options open before you, think about the schemes that you want to invest in and which are the ones that will help you achieve your goals. In this case, you need to take into account various factors like performance, expense ratio, fund management and the like.

Understanding of tax laws: It is true that taxes can chip away your profits from the returns that you get. Know more about schemes which offer tax benefits including ELSS (equity linked savings schemes) investments and others.

Opt for professional financial advice: If you have any questions or you are not sure about various aspects of investing in mutual funds, you can talk to a financial advisor to clear your doubts. This will naturally shore up your confidence prior to investing.