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5 important questions answered for a first-time mutual funds investor

By Nivesh Gyan   27 June

Category: Build Wealth

Here are a few quick FAQs for the first time mutual funds investor.

How much should I invest?

Identify your goals first; this will help you decide the amount you need to invest to achieve each goal.

Should I invest in equity or debt schemes?

It primarily depends on your investment objective, investment horizon and risk profile. If you are investing to achieve a short-term goal that needs to be achieved in a couple of years, debt schemes are ideal for you as these schemes are mostly risk proof.
 
However, if you have a long-term financial goal that needs to be met after five years or so, you can invest in equity mutual fund schemes as these have the potential to offer superior returns than other asset classes.

What is the minimum amount required to start investing in mutual funds?

It’s important to start investing and the beauty of mutual funds is that you can start with as low as Rs 100 per month. The mantra is to “start and stay invested for long term”.

If I start with Rs 100 per month, can I keep adding as my income increases?

Yes, you can. In a mutual fund scheme, you can make additional purchases in the same fund.

Is Systematic Investment Plan the only way or I can invest in lumpsum too?

It depends on the amount of money you have to invest. A lumpsum investment gives more time to investment and results in higher returns as the power of compounding (basically earning interest on interest) increases with time.
 
On the other hand, an SIP (the pre-determined amount invested at a regular interval) gives you the benefit of Rupee Cost Averaging (RCA), which basically balances out the volatility of the market in the long term. Since a fixed amount is invested at regular intervals, you get to purchase more units when the prices are lower and vice versa.

Important piece of advice!

Since you are new to investing in mutual funds, you must invest with the help of a mutual fund advisor for smooth onboarding, expert opinion and careful scheme selection.