New to mutual fund investment? Five things you must keep in mind while taking the plunge

Mutual funds are widely considered as safe bet to invest your hard-earned money for future use. The saved corpus serves as a last resort for people who retire at an early age and those who don't have any other source of income to fulfill their monetary needs.

Merely investing money randomly for the sake of saving for retirement has never been a good idea. Choosing the right mutual fund company will spare you from unnecessary harassment.

On Mutual Funds Day, Firstpost brings to its readers a simple way to understand the nitty-gritty of the mutual funds trade.

1) The very first thing a mutual fund investor needs to know is what kind of product or fund he or she wants to put their money on. To put it simply, an investor needs to identify the right assets allocation method. A report on moneycontrol.com defines asset allocation as a method that determines "how you invest your money in different investments with the proper mix of various asset classes".

 New to mutual fund investment? Five things you must keep in mind while taking the plunge

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2) The popular thumb rule for asset allocation says that the proportion of his portfolio in debt instruments should be commensurate with his age. For example, if an investor is 25, he should have 25 percent of his investments in debt instruments and the rest in equity, according to the report.

3) In order to select the right mutual fund company for your investment needs, you must first calculate what your financial needs are. You should ask yourselves as to for what purpose you are putting your money in mutual funds. Are you saving for your child's education or her marriage or to buy a car? These some of the key questions you should ask before taking the plunge.

4) Evaluating the right timeframe for redemption is also very crucial for your plans for various mutual fund schemes. How long you need to stay invested? Is it for six months or for more than three years? The onus lies on you. One thing which you should bear in your mind is the longer the gestation period the longer are the risks.

5) The most basic concept that an investor should know about mutual funds is the trade has significant amount of exposure to market risks. An investor must gear herself up for lows and ups in prices of mutual fund holdings. Mutual fund investments must be made as per an investor's risk tolerating potential.

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Updated Date: Nov 07, 2017 19:13:53 IST