A mutual fund guide for beginners

As mutual funds become a preferred conveyance to reach financial goals, many investors are putting funds in them for the first time. Here is a short guide to what first-time investors should do to invest in mutual funds and how they should cull right schemes. 

How do I make my first mutual fund investments?

First, an investor needs to be KYC-compliant. The simplest way of doing this is to fill up the KYC form, along with a photograph, a replica of your PAN card, and a valid address proof such as Aadhaar, passport copy, electricity bill or bank verbalizations. Then, submit it along with the first investment form to the registrar or a mutual fund house. Some mutual fund websites or distributor platforms withal sanction eKYC or Aadhaar-predicated KYC, utilizing which one can instantly start investing in mutual funds. 

How do I optate my first mutual fund scheme? 

When investing for the first time in a mutual fund, optate a scheme keeping in mind your age, goals, risk-taking facility, asset allocation and time horizon. Utilize calculators for goal-predicated orchestrating available online free of cost, or ask a financial planner or distributor. Typically, if you optate to invest for the time horizon of one day to less than three years, you should go with debt or arbitrage funds. For three to five years, you could consider hybrid funds which are a commix of debt and equity. If the goal is five-seven years away, you may consider higher-risk products, such as equity mutual funds. 

How does an investor cull one amongst many funds offering equity, debt and hybrid schemes? 

Financial planners suggest investors to consider the pedigree of the fund house afore opting for. Afore investing, recollect to check how the scheme has performed, history of the fund house, management track record and the performance of fund managers. 

What does the past performance of a mutual fund scheme betoken? 

While the past performance of a mutual fund scheme is not indicative of future performance or returns, wealth managers suggest investors to optically canvass the performance of three, five and 10 years of a scheme. Look for funds that have consistently beaten their benchmark during those periods. If a fund can do that consistently across time frames, it denotes good fund management and efficient process of the fund house.