A Mutual is a pool of money that a professional fund manager manages. It’s one of the best investment methods if don’t have any knowledge of picking a stock. This reduces pressure on buying selling and holding stock. In the market, there are different types of funds available like debt, equity and gold. You can invest in any of these funds depending on your investment goal and risk tolerance.
In today’s post, I will try to cover multiple queries regarding Mutual Funds. Also, you will learn about How to Invest in a Mutual Fund For Beginners in 2024 in this article. So let us dive into the post without wasting any more time.
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How to Invest in Mutual Fund?
To Invest in a Mutual fund you will need a demat account. There are many demat accounts available in India. I use Upstox for investing in Mutual funds. I like how easy they made the process of investing in mutual funds in contrast to other apps. Also, Upstox only offers direct Mutual Funds which allows you to invest at extra cost. You can follow these steps to Invest in Mutual Fund using Upstox.
- Download the Upstox App and Create or log in to your Account.
- Navigate to the Mutual Funds tab.
- Search for a Mutual Fund you wish to invest in.
- Select between the Lumpsump or SIP option.
- If you select SIP then you have to select a date and amount.
- After that, you have to enable e-Mandate through your debit card.
- If you select Lumpsump investment then you can simply enter the amount paid using a UPI debit card and if the amount is more than 1 lakh then you will have to pay using Netbanking.
Also Read: INDmoney Referral Code
Things to Consider Before Investing in Mutual Fund
Set a Goal
It is the first and most important step to create your Investment goal. You need to decide how much you can invest. Also, you have to analyse the risk profile. You can invest in funds based on you can invest different funds. For example, if you are comfortable investing for more than 5 years and your Risk appetite is high then you can consider Small Cap or Mid Cap Mutual Funds.
Diversify
It is as important to diversify your mutual fund portfolio just Like diversifying a stock portfolio. There are different asset mutual funds available such as bonds, stocks, shares, money market instruments, gold, etc which you can invest to diversify your portfolio. But don’t over-diversify your portfolio.
Also Read: Navi App Referral Code
Compare Different Mutual Funds
You can spend time researching different mutual-based various key ratios and other points. This will help you find the best mutual fund. However, if you don’t have time to spend then you can simply consider Index Fund which replicates the Nifty 50 or Sensex. Another thing you can do is to seek help from your financial advisor. Here are a few key ratios that can help you find the best mutual fund
Beta: Beta is one of the key attributes of a mutual fund. It tells us the movement of the fund in comparison to the overall market movement.
Alpha: Alpha indicates the overall performance of the Fund compared to its benchmark. If a fund has an Alpha of 2 that means it has outperformed the benchmark by 2%. If you are investing active mutual fund then it’s important to compare it performance to its benchmark.
Sharpe ratio: To understand the return on an investment compared to its risk, we use the Sharpe Ratio of a fund. If a fund has a Sharpe ratio of more than 1 then it simply means a higher return along with higher risk.
Standard Deviation: A statistical tool called the standard deviation is used to measure how far the return of a mutual fund differs from its expected return. The percentage is expressed as an annualized figure.
Expense Ratio: The expense ratio is the annual maintenance charged by mutual funds. it is another important attribute to find the best fund. However it doesn’t mean A mutual fund with a lower expense ratio cant always good. You can minus the annualised rertun of the fund with its expense ratio to get an actual return of the fund.
For example, if a fund “X” has an annualised return of 13.3% and an expense ratio of 0.6%, on the other hand, a fund named “Y” has an annualised return of 13.1% and an expense ratio of 0.2. In this case even though Mutual fund “X” has given a better return compared to “X” when we compare it with their expense ratio “Y” has given a better return.
Exit Load: Exit load is applied in every. A fund will charge you an exit load if you sell your holding. No matter how you sell you have to pay a certain percentage as exit load. So don’t switch funds too frequently.
Also Read: Groww Vs Zerodha Vs Upstox
When To Exit a Fund
Many people are confused about when to sell a fund. Most people often sell the fund during the bear cycle but you should not do this. Bear Market is the best time to invest in a fund since the NAV of the getter corrected.
SIP or LumpSump which is better
Lumpsump means a time investment of a large chunk of funds whereas SIP is a Systemic Investment Plan. With SIP you can invest in funds on a certain date of the month. When you invest in SIPs, you get to benefit from rupee cost averaging, which lowers your investment costs and increases the money you will generate in the long run. However, Lumpsump is also great in a bear market and if your investment horizon is long-term.
What If the Broker App Shuts Down?
Many people worry about is their mutual fund safe, what if the broker app shuts down? But you don’t have to worry about it because just like a stock broker doesn’t hold your fund units. If you purchase stock through any broker app then it holds depository like CDSL and NSDL.
Similar to this all of your mutual fund holdings are held by CAMS. After purchasing Mutual through any broker you will receive monthly statements from the fund and CAMS. You can also check about the fund through the fund house’s official site or CAMS site.
How To Save Tax on Mutual Funds?
There are multiple methods available that you can follow to save tax on mutual funds. Here are a few of them:
Invest for Longterm: If you sell your mutual fund holding within a year then you have to pay 15% STCG. However, if you sell the fund after one then the tax rate will be 10%. Also, gains of up to 1lakh are tax-free in the fiscal year.
Invest in ELSS Funds: You can save tax on ELSS mutual funds if you invest in them under Section 80C of the Income Tax Act of 1961. Investments up to ₹150,000 can be deducted from your taxable income on an annual basis. Although you can invest more, any additional funds that you add to your account will not be deductible.
FAQs: How to Invest in Mutual Fund For Beginners in 2024
The exemption limit is Rs. 2,50,000 for residents below 60 years of age, while it is Rs. 3,00,000 for residents 60 years and older but below 80 years of age. In addition, the exemption limit for residents over the age of 80 is Rs. 5,00,000.
The exemption limit for Long Term Capital Gains is 1lakh. So if you sell and book a profit worth 2 lakh then you don’t have to pay taxes for the first 1 lakh but pay 10% for the second one.
If you book profits by selling your mutual funds then you have to pay taxes. However, if you sell funds within the exemption limit then you won’t have to pay taxes.
