A mutual fund is an investment option in which multiple individuals pool their funds to invest in financial securities like shares, debentures, bonds, gold, etc. It is a professionally managed fund and all the returns on the investment are divided amongst the members of the funds in proportion to their contribution to the fund. Mutual funds are managed by entities known as Asset management companies (AMC).
What to consider before buying or selling?
As you must know, mutual funds are subject to market risks, the following factors should be analyzed while executing trading decisions related to mutual funds:-
Personal financial goals: One’s financial goals are the impetus behind taking any financial decision. The probable outcome of the decision should align with the goal behind it. Thus, while choosing to buy or sell any mutual fund it is imperative to analyze your financial goals.
While buying, choose funds that will aid you in the quest to achieve a goal be it buying a house, saving for a vacation, buying a car, etc. Alternatively while selling your securities consider if the investment can further serve you, if you have accomplished your initial aim, etc.
Performance of securities: Although the past performance of a security cannot certainly dictate how the security will perform in the future, it is a reliable indicator that can be referred to while making a decision.
The risk factors: It is crucial to understand the risk factors that are involved in the trading decisions. Depending on the fund you choose, it is possible that you might earn profits or face losses. The degree of risk should be closely noted and you should make a decision according to your own risk appetite.
How to buy Mutual Funds?
Choose a fund: Choosing a fund is the first and the most important step in the journey of investing in mutual funds. This decision is a personal choice but it is advisable to research the choices available and outline your financial goals before narrowing down to a single choice.
Select an AMC: After choosing the fund you want to invest in, settle on an Asset management company that can furnish your financial needs. Examine all the charges, fees, and the total expense ratio that comes with selecting a particular company and determine accordingly.
Another factor to regard is if the company offers services according to your own investment plan. Simply put, if you want to invest in a lump sum amount or through a systematic investment plan (SIP) learn if the AMC has either facility.
Mode of investment: There are multiple modes that you can invest through, both online and offline.
Offline- You can either directly visit the fund house you have chosen or visit a broker’s office to start your investment execution process.
Online: To start the process online you can visit the official website of the fund house or download an app if your fund house has developed one.
Complete KYC: For both online and offline modes, you will be required to complete a KYC process to verify the authenticity of your identification. KYC is a mandatory requirement and cannot be avoided. To complete KYC certain documents including Aadhar, PAN, passport size photos, etc. have to be submitted. Many companies provide the facility of e-KYC as well.
Start investing: Once you have completed all the steps you can pay the fees and start your investment by making a payment (lump sum or the first installment).
Alternatively, without a broker, you can also directly invest by creating a demat and trading account.
How to sell Mutual Funds?
The process to sell securities is quite simple-
Make a decision: To sell mutual funds, decide on how many units you would like to sell and in what duration of time. This is called the redemption of mutual funds. It must be recognized that selling mutual funds brings with itself some tax implications.
Contact your fund house: Similar to buying mutual funds you can sell them through the aforementioned online and offline modes as well. After communicating how many units you wish to sell you have to instruct the selling body how you wish to deal with the funds that are liquidated. You can either get them transferred into your bank account or invest in another fund. The fund house may charge a fee for carrying out this service.
In conclusion, the steps to buy or sell mutual funds are not complex. On the whole, it crucially depends on making the correct decisions that suit your personal goals and this can be done constructively by acknowledging all the factors and risks involved.