How do I invest money in mutual funds?
Introduction
Hey Guys, I am doing Engineering(B.Tech) in Computer Science and currently investing in two mutual funds with a month of 500 in each. Today I am going to tell you how you can also start investing in Mutual Funds in summary. The best part of investing in mutual funds as a student is that you don't even need to get a job and earn money to make investments. A part of your allowance or pocket money can be set aside each month and the same can be invested in mutual funds through Systematic Investment Plans.
Mutual Fund
An average person can invest money in the stock market directly or if not take the mutual fund map, which is to a large extent the best mode to invest in the market. People who do not have enough time to track the stock market can opt for mutual funds. There are many apps like Paytm Money, Groww, and many more by which one can invest.
The basic benefits of investing in a mutual fund are:
Stress-free – Stock is very volatile and one needs to be very skillful and efficient for profitable investing directly. Whereas in mutual funds, the fund manager, and his team take care of your money and takes the best decision on your behalf. You have to just invest and trust.
Small Money Can Be Invested – You can start investing in a mutual fund with even Rs 100, which is not possible in case you want to invest in shares directly. Shares of some of the listed companies trade at higher prices, which can’t be owned by small investing directly with small amounts.
Tax Benefits - In equity mutual funds, all returns are tax-free if investments are held for more than a year. Additionally, In ELSS (Equity Linked Saving Schemes) funds, one gets a deduction up to Rs 150000 under section 80C of the income tax act.
Some Terminology which you should know before Investing.
Here I am not explaining in detail you should just search these
Equity Mutual Funds
These funds invest in the shares of different companies. There is a number of risks linked with these funds since their performance depends on various market conditions. The fund manager tries to offer great profits by expanding his investment across companies from different sectors or with diversifying market capitalizations. Equity funds are known to generate better returns than term deposits or debt-based funds.
Large-Cap Funds – These funds typically invest a minimum of 80% of their total assets in equity shares of large-cap companies (the top 100). These schemes are considered to be more stable than the mid-cap or small-cap focused funds.
Mid-Cap Funds – These funds invest around 65% of their total assets in equity shares of mid-cap companies (101-250th placed companies according to market capitalization). These schemes generate better returns than the large-cap but are also more volatile.
Small-Cap Funds – These funds invest around 65% of their total assets in equity shares of small-cap companies (251st and below placed companies according to market capitalization). This is a huge list and more than 95% of all companies in India fall into this category. These schemes give great returns than the large-cap as well as mid-cap schemes but are also highly volatile.
Multi-Cap Funds –These funds invest around 65% of their total assets in equity shares of large-cap, mid-cap, and small-cap companies in ranging proportions. In these schemes, the fund manager keeps rebalancing the portfolio to match the market and economic conditions as well as the investment objective of the scheme.
Large and Mid-Cap Funds – These funds invest around 35% of their total assets in equity shares of mid-cap companies and 35% in large-cap companies. These schemes offer a great blend of lower volatility and better returns.
In the next article, I'll be explaining to you, how to invest your money in mutual funds smartly through different apps.
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