5 things everyone should know before investing in Mutual funds
PERSONAL FINANCE

5 things everyone should know before investing in Mutual funds

5 things everyone should know before investing!! Stock market is not a gamble, it is a business. However, we make it a gamble by investing without knowledge. With market high and down can be frustrating for a new investor. For the first time investors who invest in stock market or in Equity Mutual fund should always refer one quote

“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”- Warren Buffett

Ideally, one must take help from expert fund manager to manage your funds in the stock market. Mutual funds as an expert collect money from investors and invest in stocks.

In mutual funds, first time investors should look at Systematic Investment Plans (SIPs) to build long-term wealth. SIPs allow an investor to buy units on a given date each month. One can start with a minimum amount of Rs 500. The biggest advantage of a SIP is that the investor doesn’t have to time the market. Investing every month ensures that one is invested during the highs and the lows.

In the volatility of the market it will be in your favor if you go with the SIP, More units are purchased when a scheme’s net asset value (NAV) is low and fewer units are bought when the NAV is high and in the longer time frame it will average out the cost & will give you more benefits in terms of returns.

Here we have some advice for first time investors

ALSO, READ TOP 5 BEST MIDCAP FUNDS TO INVEST IN 2018

Start Investing with an IDEA

Before you invest your first single penny into the stock market or in Mutual funds ask yourself, “Why am I investing, and what do I want to achieve?” Having an IDEA is the most important step in the process, and it will help you achieve your goals.  For example, if your goal is to save Rs. 50,00,000 in 10 years, start with the end in mind and figure out how much you will need to invest monthly to reach your goal

Portfolio Diversification

Investing is about more than just the stock market. Trying to get rich quick by putting all your money into a few hot stocks will almost certainly fail in the long run. The path to long-term wealth creation is building a diversified portfolio of stocks, bonds and a range of other asset classes.

Define your Financial Goal

Before investing, it is always advisable to know, for whom I am investing, all your investment should be aligned with your any specific financial goal, it may be for your retirement, child education, home improvement etc. Once goals are determined, one can project how much-expected growth they need to achieve these goals. That, along with risk tolerance, will drive asset allocation and exposure to parts of the stock market

Persistence with your investment

Don’t expect magnificent results from day 1. Initially, you may also lose some money. Combine investing with sound money management skills. Invest regularly. In any form of investing, discipline and regularity are the most important determinants of success. Warren Buffett put it well. ‘We don’t have to be smarter than the rest. We have to be more disciplined than the rest.’

The Earlier You Start, the Easier It Is to Build Wealth, Thanks to the Power of Compounding

You’ve probably heard this a million times but it’s important that you truly believe in this statement, to reach the inflation-adjusted corpus you need to start early for your investment, you will end up far richer if you begin investing early. It is due to compound interest and the outcome differentials are staggering.

Let’s understand this with an example:

Suppose Sonu starts investing Rs. 1,000 monthly, at the age of 30 and Monu starts investing Rs. 2,000 monthly, at the age of 45. Both decide to retire at the age of 60 and the invested amount is compounded monthly. You can see the difference in the wealth that both have accumulated at the time of their retirement in the table below:

You can see in the above table, Sonu started at an early age and Monu started at a later age. Even though both of them invested the same principal amount, Sonu’s corpus is more than twice the corpus accumulated by Monu, at the time of their retirement. That’s what compounding can do to your money if you start at an early age.

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