Mutual funds are professionally managed investment funds that pools money from many investors to purchase securities such as stocks, bonds, and short-term debts. This investment may seem complicated for the first time investors. Hence, it is important to understand it completely.

Live TV

Loading...

Here are few factors to consider before investing in mutual funds:

Understand The Scheme

Every scheme has an investment objective, risk exposure and other factors that make it unique.

"Investors must go through all scheme-related documents and understand the scheme's risk factors, ratings, etc. They should also pay attention to the tax treatment of the scheme," explains Harsh Jain, co-founder and chief operating officer, Groww.

Assess Investor Profile

Before investing in a mutual fund, it is important for investors, as Jain says, to assess their preferences like financial goals, risk tolerance, and investment horizon. Also, schemes should be selected if they align with their preferences.

Learn About The Fund Manager

The fund manager plays an important role in the performance of the fund. Hence, before investing in the scheme, it is important to read about the fund manager’s performance in the past in handling different types of schemes under different market conditions, according to Jain.

Choose The Right Scheme Option

Most schemes are available in two options – growth and dividend. In the growth option, the dividend is not paid out but reinvested allowing the investors to get capital appreciation over time. In the dividend option, investors receive a dividend pay-out regularly.

Choose The Right Investment Platform

Investors should choose the right investment platform for opening mutual fund account.

"New age platforms offer convenient account opening, commission free

investing in direct mutual funds and tools such as tracking of external investments, portfolio analysis and educational resources to help investors at each step of their journey," says Jain.

Choose Right Mode of Investments

Investing via systematic investment plans (SIP) is advisable for those investing in equity instruments for the first time. While a lump sum investment can put the investor at the risk of catching a market peak, a SIP allows them to spread investments over time and invest at different market levels, according to ClearTax.

Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

First Published:Sept 18, 2020 7:22 PM IST