Do you ever think it will take forever for your savings account to make any significant money even after years of waiting? You’re probably not alone. A lot of people figure out that traditional savings accounts won’t create enough wealth for them over time. That’s where mutual funds play a role; they are an easy way to slowly grow your money while managing risk.
At Moneyplantfx, we believe mutual funds are some of the easiest ways to start investing for beginners. They provide diversification, professional management, and the ability to build wealth over time.
This blog will discuss what mutual funds are, how they work, and teach you to invest in a mutual fund as a step-by-step or “how to” process.
A mutual fund is a collection of money pooled together from many investors which is managed by a professional fund manager. The pooled money is then invested across different financial assets or securities including stocks, bonds, and other things.
Think of it as a picnic where everyone brings a dish. In mutual funds, everyone brings money, and the fund manager guarantees that the money is invested in separate financial assets to diversify the risk.
In this way, if one asset under performs, there will be other assets that bolster the investment return.
Investing in mutual funds does not have to be complicated! Below is a simple process of investing in mutual funds:
Before you start, ask yourself, why are you investing?
Different funds have various levels of risk. You have to figure out what level of risk you feel comfortable with or can handle.
You will find that there are several categories of funds, for example:
Not all funds are the same. Prior to investing, review the following:
Because of the cost and ease of use, you may decide to invest through an online brokerage.
You should create your investing account with your platform. This may be a regular brokerage account ( or a certain type of account that has tax advantages—it depends on your goal).
Move funds into your investing account from your savings account.
There will be a question of how much to assign to each fund.
You may choose to set up Systematic Investing Plans (SIP) to create a habit of investing regularly. SIP’s also enable rupee cost averaging, while smoothing out daily variations in the market.
You should periodically review your investments—at least annually or semi-annually—and consider if one asset class has grown to share an unbalanced amount in your portfolio, and if so, you may want to re-allocate funds to maintain your risk levels.
It all comes down to your income, spending, risk-sensitivity, and long-term objectives, the best way to start is to start small and escalate up.
Yes, values fluctuate; however, the idea of value going to zero is insignificant, value is hard to achieve with diversity in a portfolio.
The best time to invest is as soon as your finances allow. Continuously investing through SIP is a good way to fight volatility in the market.
Tax-saving funds are those specifically categorized as ELSS or equity-linked saving schemes will allow you to realize deductions under section 80C, and play in the Indian income tax act.
No, tax will vary based on the fund-type, and short-term vs long-term capital gains as funds become off-shored.