The last time you watched TV, the last time you were in a theater and all the billboards on the roads are all saying one thing “Mutual funds sahi hai”. What’s this all about? Why is everyone suddenly chanting this? Is this extreme promotion only to lift a falling structure?
No! The reason AMFI has allowed marketing is just to clear the air between the truth and what people think. The general public are extremely hesitant to invest because of the experiences of others. That is the prime reason we are seeing the ads everywhere to educate and create awareness about how mutual funds work.
Here are answers to the top questions you might have googled about mutual funds.
Q1. When Should I start Investing in Mutual funds?
“The best time to plant a tree was 20 years ago. The second best time is now” this answers the question. Yes, you might be late to start but don’t delay once you know it. Unless one doesn’t have any money to invest at all, there is no reason to start early. There is no defined age to enter mutual funds market. It is always best to plan finances as soon as one starts earning.
There is a mutual fund for everyone, no matter what stage of life they are in, what requirement they have or what period they can invest.
Q2. Do I need to have any knowledge of markets before investing?
“You don’t have to be a Pilot if you have to travel in a plane” similarly, you don’t need any intense knowledge of the markets. There is always a fund manager to help you glide. You need to just know your objective of investing and you are all set. If you feel left out when someone is talking about mutual funds, then you can familiarize yourself with the simple basic concepts online. Here is one of them for you Financial Jargons thrown at every newbie.
Q3. I don’t have a large sum to invest. What do I do?
If you are wondering you are not rich to invest, then be super happy! You can start your mutual funds from just ₹500 every month. Don’t expect this investment to buy you a Villa or a Jaguar, but this is to just embark your investments journey. Sure the power of compounding works but it doesn’t work like magic to multiply money. Increase this investment amount as your disposable income increases. Make sure you stay disciplined by investing regularly and stay invested for a long time.
Q4. “I can only invest for 1 year”, “I can invest for 10 years”?
Ok now, this might sound rather contradictory, but YES, mutual funds can be a good investment for both short term and long term as well. All you need to see is if your objective meets with the objective of the fund
1. Equity Oriented Mutual Funds: Look for longer periods, typically 5 years and above.
2. Fixed Income oriented Mutual Funds.
a. Liquid Funds - For very short term - Less than 1 year
b. Short Term Bond Funds - For the medium term - 1 to 3 years
c. Long Term Bond Funds - For the long term - 3 years or more.
There is a fund for everyone.
Q5. What happens if I skip a payment of SIP?
Let’s accept it, we all forget things. There might be some situations when you might forget to pay your SIP amount on time. This might seem like a huge issue but it isn’t. They aren’t harsh to cancel the investment like how insurance and banks cancel the policy. But this can be easily cleared by issuing a standing instruction to automate your SIPs so you wouldn’t miss any. You can resume even after skipping the months you could not contribute. However, this will obviously affect the returns earned at the end.
Q6. Does my money get locked up?
No! Money is not locked up but it gets invested. It is always advised to keep the money invested to dodge market volatility but it doesn’t mean that there is a mystery man holding your funds refusing to return you. It is just being managed by the fund house. Depending on the nature of the fund, you can sell the units or surrender the units whenever you are in need of liquid cash. You might be charged an exit load depending on how early you withdraw and if you want to transfer these funds to another fund (within the same fund house) then that is also possible through STP.
Q7. Why does the disclaimer say “Mutual funds are subject to market risks”?
This might seem like a huge risk outright as soon as someone listens to it. It feels like the fund house doesn’t have any responsibility for the investments made. Yes, in reality, the prices of the securities are fully dependent on the market forces and the fund house hardly has any control. This is to communicate to the investors to make an informed decision with every investment they make in the fund. As an investor, you must be aware that markets are volatile and long term stay will offset this.
We hope you are much smarter in regard to mutual funds after reading this. We will be back with more questions and answers. In the meanwhile, if you have any questions, drop them in the comments section below and we will be glad to answer them for you!
Now that you know mutual fund is an investment that fits your needs, what are you waiting for?
Oh, wait! We haven’t discussed which funds you have to invest and how to invest.
Log onto www.7Prosper.com to generate a custom goal based financial plan that suggests you the exact funds to invest in, how much to invest and how long you will have to invest to lead a life you have planned!
If you already know when and how much to invest, then you can start your investments through the 7Prosper website free of cost and with absolutely no charges or commission.