Is this a good time to invest in mutual funds.?

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Mutual Funds Investment

Is it a Good time for Mutual Funds.?


    Mutual Funds are subject to market risk and please read documents carefully before investing: 
    You must have heard this disclaimer line after some ads related to mutual funds on your Television. And then inside your mind, you will have a variety of questions like below:

What are mutual funds (MF)?
What is this subject to market risk?
Which documents to be read carefully?
Should I also invest in mutual funds?
Which mutual funds are good for me, then?
Why invest in Mutual funds?
What are the benefits of investing in a mutual fund?
What is the best time to invest in MF?
What is this SIP concept in MF?
How much corpus I will be able to build using this MF?


So then, to find the best answers for the above questions from everyone's mind, hang on with this blog post for 5-6 minutes and if found worth consider sharing with your friends.

Mutual funds (MF's):

    MF is an investment option for those who don't want to invest directly share market or on their own because of lack of knowledge 
Or... 
I can say MF is the best tool when
  • You don't know which share on the share market is good for you
  • You don't know where to invest in share market but you still want to invest in share market
  • You don't have huge lump sum money with you to buy a particular quantity of shares you have decided
  • You want to invest in multiple shares but because of the high share price, you can't invest in each and every stock of your choice.
  • You want to invest your money more safely than with the direct equity purchase risk ( risk from direct share buying) 
  • You don't like to check the share price of a stock continuously(daily) and prefer long term option for your money to grow
  • You would like to generate retirement corpus for yourself by the age of 65 

    MF is a concept wherein you are paying some money (SIP / Lumpsum) to the Fund house usually called as Asset management company (A.M.C.) and they are investing your money in the shares, bonds, government bonds, debts, gold, etc
    There are various types of MF's and each mutual fund is managed by a highly educated professional/certified financial planner called as a fund manager. There can be one or more fund managers managing a particular fund.
    These fund managers will manage your money on your behalf and they will invest this money as per the MF scheme portfolio. Every mutual fund gives a rate of return depending upon the performance of the underlying stocks in its portfolio. If the MF's stock portfolio is performing well, we say that the corresponding mutual fund is performing well and giving good returns to investors.

Some quality & good mutual funds give investors 10% to 20% returns. which is considered a good rate of return.

    AMC charges some fees and charges like investment management fees, advisory fees, registrar fees, etc. These charges are combined under a header called Total Expense Ratio (TER). So at the time of withdrawing your money from your Mutual fund. The value of TER is usually lying between 0.5 % to 2.5 %.

Consider a below simple example for understanding mutual funds:    

    The 26 People A to Z, knows that Ajinkya has a good track record of managing money. Ajinkya has a certified money manager, financial advisor, and Finajinkya is a good money managing company. So these 26 people are sure that this is a good mutual fund AMC having the best funds in it managed by Ajinkya.
    
    Consider Ajinkya has received a sum of Rs.1000 from these 26 people each. The name of the Asset management company is Finajinkya and the name of the mutual fund scheme is Finajinkya's, Standard Equity Fund. 
So Ajinkya is the fund manager of the Finajinkya AMC and manages a fund called as Finajinkya's Standard Equity Fund.

    So, Ajinkya will invest the 26,000 Rupees collected from A to Z in the share market on behalf of these 26 people and will make some good profit in some stipulated time frame. Ajinkya will charge some 0.5% as a TER while redeeming the money from the MF scheme as a fee.

Market Risk in mutual funds:

    There are various types of mutual funds and it has a risk associated with it.
Depending upon the asset allocation and portfolio the fund manager invests in Equity, F&O, Foreign Equity, Bonds, Debt, etc.
    A good diversified MF into direct equity, large-cap stocks are considered as less risky whereas MF which invests in small and midcap stocks is considered as a high-risk instrument. Usually, if you invest in the long term you will end up making huge money because if the compounding effect.
    One should invest in the mutual funds by taking into account the risk involved associated with it. 

MF Scheme information Doc

    Every MF Scheme has its own document or brochure called the Scheme Information Document (SID). This document has detailed information about the MF scheme details like 

Portfolio Allocation -  In which stocks the MF is going to invest

Sector Allocation -  What will be the sectoral % of the Allocation like Bank, OMC, Agriculture, Commodity, Automotive, etc

AUM -  Asset under management: how much money the MF scheme is handling till now.

Risk-meter -  Risk involved in the MF scheme. 

Fund manager detail, Past performance, etc

    Every new investor should read this scheme document once before investing because it has all the information one needs to know before investing. At least we should go through the portfolio allocation, risk associated and sectoral allocation and past performance pages.   

Investing in Mutual funds

    Nowadays investing in mutual funds is very easy with the SIP i.e, Systematic Investment Plan. SIP is similar to an EMI concept. You can set up a monthly/ quarterly or even a daily SIP from your Bank Account. So depending on the NAV (for simplicity consider share price of that MF) of that scheme on that day of your SIP, Mutual funds units are allocated to you.
    This NAV is decided by some parameters: let's not go in detail in that for now. 

Consider the below example:

    Suppose I want to invest in some 10 shares of different companies that are large-cap and each company share price is around 2000 rupees. So I personally can't buy all 10 of those companies' high share price stocks.
    Instead, I'll look for a specific mutual fund that invests in these large-cap stocks which I like. So I'll only invest in this MF now. 
    The bottom line would be I'm actually investing in those 10 companies as my MF is doing that for me. The NAV of that MF is directly dependent on those 10 stocks performance. Let's say 8 companies perform well and 2 occurred losses. But you are still in profit as the NAV is the average of the 10 companies' price and their allocation.
    So you invested in stocks which you like and even if 2 companies are making a loss you are making a profit. So its better to invest in mutual funds rather than direct equity shares and to make more from compounding effect 

Best time to invest in MF

Investing in Mutual fund
Start your SIP today

    There is no such specific time to invest/start in mutual funds. The sooner the better is what I can think of for my fellow readers.
    I had started investing in mutual funds when I was 22 with the amount of Rs.500. Currently, I invest Rs. 2500 per month in three different mutual funds. I'm investing this money for a very long term horizon in my mind about 30 years and with the goal of 1.25 Crore target.

    Before some 6 months Nifty (Benchmark index of NSE) was trading at 12,430 and Sensex (Benchmark index of BSE) was trading at 42,270. 
But due to the coronavirus Pandemic started in India from Jan-Feb 2020; the Nifty and Sensex are were down almost 30-40% down from these highs in March.
The Indian Markets are slowly recovering from their lows, and most of the companies are available at lower prices. 
    Therefore, almost all Mutual Funds prices/NAV's are also at their lows, Hence, this is a very good time to buy/accumulate quality stocks/share/MF's at affordable prices.



Stay tuned for the upcoming blogs on

"Start your first SIP with SBI Mutual Fund.."
"Start your first SIP with HDFC Mutual Fund.."

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