5 Tips to Keep in Mind before Investing in a Mutual Fund

Everyone looks at mutual funds as a good investment option. Making an investment in mutual funds is a wise decision. The investment made in mutual fund offers multiple investing options and also offers the easy liquidity. However, before you take a decision of investing in mutual invest; it is necessary to consider some things for your benefits. It will give you a clear idea about the decision of investment. 

Have a look at these 5 tips which you need to keep in mind before investing in a mutual fund-

  • You must have a clear picture of why you are making an investment. What is your purpose? You should be able to define your goals like you want it for buying a car or a house, or saving for the future? Setting particular goals helps you to be on the right track and makes your way easy to reach your desired goal or the target. You should also know what the ways of investment are like direct or indirect.
  • Risk assessment-Mutual funds run on share market conditions so, you need to be ready to bear risk as well. Every investment done in a mutual fund comes with a risk. Before investing, it is mandatory to do risk profiling for your self-understanding. You will come to know that how much risk you can handle. You must know what your risk appetite is, low, moderate or high? It is always good to do an investment considering your risk appetite.

  • Whether to go for a lump sum investment or for a SIP- You need to have an answer for this question before investing. If you have a constant source of regular income and also have a monthly saving then you should opt for a lump sum. However, one can start investing in SIP with a small amount of Rs 5000 a month.
  • Tax rebate- Mutual funds tax liabilities are usually based on short and long-term capital gains just like stocks and bonds. You should consider few questions like – the amount which you are investing is it tax exempted? Are the returns tax exempted?In some cases, you cannot withdraw your money before 3 years, which comes under 80C.
  • Monitor it regularly-You need to keep in mind that monitoring mutual fund on regular basis will help you to know the status of the funds, which are accumulated through mutual funds. This will also help in selling and redeeming when its value is high.

It is always good to take precautions. You should always know what are its pros and cons. Thus, to have a safe investment you need to keep these points in mind before doing an investing in a mutual fund.

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