Hello everyone, welcome back to my channel. For the longest time you've all been asked me to make a video on investing in mutual funds. So here you go today. Finally, I'm going to share with you a video that discusses all that you need to know about mutual funds so that by the end of it, you will have all the relevant information with you and you can start your investing journey right away.
So we'll start with discussing the most basic question first, what really are mutual funds? Very simply put, a mutual fund is a pool of money collected from multiple Small and Medium investors with the intention of investing it in company shares, stocks and bonds. So you and I together as small and medium investors can pull in our money together and hand it over to a mutual fund company and the investment Or the manager of that mutual fund will make investments for us on our behalf.
So now we move on to the next obvious question, which is why our mutual funds beneficial. Now, there are three main reasons why mutual funds are beneficial. Now benefit number one is that it actually helps us in minimizing losses. How does that happen? You and I, as small investors have very little amount of money in our hand every month that we can use for investment purposes. When the money is small in our individual capacity, it is difficult for us to minimize the risk of stock market fluctuations. However, when you and I as small investors come together, the small fund of money that we have put together becomes a fund that's large enough for somebody with professional knowledge to invest it in multiple different sources. Now, when the fund is invested in multiple different sources, that actually helps us in minimizing that risk. And why does that happen? Because then a pool of money is invested in multiple different places. Even if one place fails to Perform, we still have other places that keep our money safe. A benefit number two is the technical knowledge itself that is required to invest in the stock market. Not all of us have the technical knowledge that's required to successfully invest in the stock market. The world is pretty complicated, and in most cases very, very technical. So with mutual funds, the benefit is that all we have to do is take our money and give it to somebody who is known as an investment manager. Now the manager of mutual funds are people who come with years of experience and are professional investors. So with a very small commission, or absolutely zero commission, in the case of direct mutual funds, all we have to do is hand over our money to somebody and let go all the worries and all the tension that we would otherwise have to take for investing our money on our own. So benefit number three is that mutual funds are actually really safe. Mutual funds in India are heavily regulated under the Securities and Exchange Board of India or CB, therefore, they're extremely reliable. Basically, you can count on the fact that they won't run away with you Money. Now that we have a clear understanding of all these things, we will move on to understanding the different types of mutual funds that we have. The reason why it's important to understand the different types is because once you know this, you will be able to pick and choose any one of them according to your needs and requirements. There are many ways of categorizing mutual funds under different categories. But to keep things very simple, I'm just going to categorize them according to the risks involved in investing in them. According to the risk factor involved. There are three types of mutual funds. The first one is high risk, high return mutual funds, as the name suggests, these are high return mutual funds, that also comes with high risk and volatility. Basically, these funds invest in the shares of small cap companies or companies which could possibly be in a situation which are generally termed as a market risk. So here, the situation can go either way. If the situation turns positive, the company ends up doing really well. And we as initial investors get a lot of benefit out of it. But in the world Worst case scenario, if the situation goes negative, then we may also end up losing the money that we've invested. So these kinds of mutual funds are actually suitable for young people who generally have a slightly better capability to take risks. The second type of funds that we have are medium risk, medium return funds, these type of funds invest in the shares of mid cap companies or some debt instruments as well. Now that instruments are generally considered relatively safer, which is why these kinds of funds are able to offer us medium return of about 10 to 14%. By offering only medium risk is kind of funds are generally suitable for anybody who's a beginner in investing in mutual funds, or anybody who's at the moment is looking to just test waters. The third type of funds that we have are low risk low return funds. So these type of funds invest money in large cap companies like the reliance or Tata and companies like that. They are generally considered very safe avenues, but they offer anywhere between eight to 10% of interest per annum. So these are actually very great option. for senior citizens or for anybody who has a very low risk taking appetite, so after understanding all the basics that we needed to know by this point, we will move on to asking some more important questions. How do we invest in mutual funds? Is there a specific amount that we have to shell out every month? Is there a minimum limit? To answer it very simply, there is basically no minimum limit, it is very flexible, you can choose the amount of money that you want to invest. There are two ways in which you can invest in any mutual funds. The first way is called lump sum investment. The lump sum investment is when you take a certain amount of money and you invest the entire amount in one go. So for example, you have one lakh as savings in your account, you can actually take the entire one lakh and invest it in one go. These type of investments are called lump sum investments, and they are generally very, very useful for senior citizens and for people who generally have a large sum of money lying with them. The second type of investment is called sip, systematic investment plans or si p in sip or si If you don't need to invest a large sum of money in one go, what do you need to do instead is commit to investing a small amount of money every month, for a certain number of years. Now, this amount can be as low as hundred rupees, 500 rupees 1000 5000, whatever suits the needs, and the requirements that you will have these kind of investments are actually very, very useful for salaried employees or working professionals.
So, students, because what happens in such a case is that we generally don't have a lot of money lying around with us. But because we receive our salary every month, we can always take out a small amount of money from from that and invest it as a part of society. So, now that you've understood this, I want to talk about a particular type of fund here that offers some other benefits as well.
This type of fund is called LSS, or equity linked savings schemes. The reason I'm mentioning it here is because it offers another very important benefit that other mutual funds. Now these type of funds basically come with a lock in period of three years. So whatever money You invest in these funds, it will be locked in for three years.
And you can withdraw that money only after this particular term is over. The locking period starts with about three years can go up to as high as five years. But the major benefit that these funds offer is that they actually help us in tax feeding. So any amount of money that you invest in these funds, comes as a tax deduction for you under the section ATC. So up to a limit of one lakh 50,000 per year, whatever money you invest in these funds will be deducted from your income for all income tax calculations.
So you get the returns of mutual funds, as well as you get tax benefits, which is why these kinds of funds are actually amazing for any any salaried employee, and anybody who at this point is paying any kind of income taxes. So by now we have a clear understanding of all that is required for us to invest in mutual funds. So we'll move on to the very, very important question. How do we start investing in Mutual funds.
There are many ways you can directly do your research online study different funds their performances individually and decide on which one to go for. While doing your research, please look for the following factors
past performance and average yearly return on investment, the risk profile of the funds, we know that it would either be high risk, low risk or medium risk. The investments are the instruments that are used for investment, that is the shares, bonds, debt instruments, etc.
The lock in period if there is any, and the fund manager manager of the fund and his or her background. Once you're satisfied with your research online, and you have picked the fund that suits your needs, you can go on the funds website and finish the process there. However, there's also an easier way of doing this. There's an app called quill which you can download on the phone right away. And you can do all these steps directly on that app in one single place for free.
Now, you can look at all the mutual funds that are available in the market that past performances their risk profiles. All the other relevant data that I've mentioned in the video before, and you can do all that on the app directly. And once you've picked and you've chosen your mutual fund, then you can start investing also on the app itself.
To start the investment process, you will need to do just a few basic mandatory KYC steps like uploading your plan information and your bank information. And you can start the investment process. And you don't have to worry about the app being safe because the app itself is regulated by the Securities and Exchange Board of India that I mentioned in the begining . There's this one particular feature of the app that I would like to mention at this point, because this is one feature that I personally really liked. On this app, there are two sections. If you're somebody who likes investing by doing your own research and getting into the technical details and the technicalities of investment, you can definitely do that through the app, you will have all the information relevant and required for making the investment on the app. But if you are somebody who's a complete beginner and does not want to get into the technicalities, The app also has a feature where you can just set a particular goal and target for yourself. For example, let's say you want to have about 20 lakhs rupees by the end of 10 years, then you can set that as a target.
And the app itself will recommend all the funds that you need to invest in right away. So with this, I think you have all the information that you need to start investing in mutual funds. So what I expect you to do at the end of this video is to go back and start your investing process. For this. The basic step is that you do a basic budgeting calculation and figure out the amount of money that you can shell out every month to invest in a CIP or a systematic investment plan.
But but but I think there are some misconceptions
that also need to be cleared right away. There are two big misconceptions that I think most people have about mutual funds, and I want to talk about them right now.
The first big misconception is that everyone thinks they need a D mat account to start investing in mutual funds. This is absolutely Not true Dmat account is not needed for investing in mutual funds, you just need to do a few KYC steps that are absolutely mandatory, and they're also mandatory for our own protection. misconception number two is that mutual funds are going to make you rich overnight.
This again is not going to happen. Mutual funds are subject to market risk. And while they do offer a great rate of return, they also come with their own fair share of risk. So make sure that you do your own calculations, understand the risk profile under which you will sort of fall in the category understand your risk appetite and only then make your investments.
It is not going to make you rich overnight. Most of the mutual funds will start giving you positive returns only at the end of second year. So make sure that you do your research, understand all the requirements and only then start investing in mutual funds. So that's it for today. I hope you got all the required information Thanks
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