Make The Most Of Your Mutual Fund Investments With These Simple Tips

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As one of the most versatile investment instruments, mutual funds can easily fit into different investment strategies. However, the success of your investment plan hinges on the funds you choose basis your investment horizon, financial obligations, and risk appetite.

Thus, it is important to consider some factors that ensure that the growth and returns on your investments are attuned with your investment goals and needs.

Things to consider before investing in mutual funds

Once you’ve established your investment goals, you’ll be able to assess the investment amount and the holding period, based on your current financial situation. The next step is to design an investment plan to meet your financial goals.

To help you build a sound mutual fund investment plan, here are some factors to consider:

Set realistic expectations


To create an effective investment plan, you need to determine the returns on your investment. The key is to set realistic expectations, based on the market performance. The value of securities may not always increase, and there can be lengthy market downturns that may adversely affect your returns.

You can weather such market volatilities by diversifying your portfolio and invest in a mix of debt or/and equity funds that offer stable returns with consistent capital appreciation


Choose the right time horizon


While your goals can help determine the holding period for your mutual fund investments, it is important to identify your time horizon. The time horizon directly affects your investment approach and the mutual funds you choose.

If you’re looking for a shorter time frame, it is best to choose debt mutual funds that invest in fixed-income assets. On the other hand, if you have a longer time frame at hand, you can choose equity mutual funds or hybrid funds that are equity oriented


Consider your risk appetite


While there’s some risk involved with mutual fund investments, an informed decision that factors a certain amount of risk can help you reap greater potential returns on your investment. To navigate this fundamental risk and return conundrum, you must understand your risk appetite, which depends on your age, current financial circumstances, and obligations.

It is also important to note that investments growing quickly in a short period, can just as quickly decline in value. However, investment volatility is inevitable, and a sound long-term plan addresses such volatilities.

Once you’ve considered the above factors, make sure you choose the right mutual funds and start investing early to reap the benefit of compounding. Compounding helps in ensuring that earlier investments in mutual funds result in faster growth in the value of your investments.



Documents you need to keep ready

Once you’ve selected the mutual funds that suit your investment goals, you can start investing within a few minutes. However, it is important to know the documents you need to provide, so you can avoid incidents of fraudulence and avoid any kind of tax irregularities.

Here are the documents that you will need to provide, when you start investing in mutual funds:

  1. Proof of identity - You may produce any of the following documents as a proof of identity:
    FOR KYC Compliant:
    • PAN with photograph (often mandatory)
    FOR KYC Non-Compliant:
    • Passport
    • Voter's ID
    • Aadhaar Card
    • Driving Licence
  2. Address proof – Here are the documents you can provide, as a proof of address: 
    • Aadhaar
    • Driving licence
    • Passport
    • Passbook or bank account statement; less than 3 months old
    • Ration card
    • Voter's ID card
    • Flat maintenance bill
    • Insurance copy
    • Registered lease/sale agreement of residence
    • Utility bills such as electricity bill, landline telephone bill, or gas bill; less than three months old
  3. KYC compliance – To start investing in mutual funds, your PAN must be verified under the ‘Know Your Customer’ (KYC) norms. You may check your KYC compliance or register yourself for KYC through the website of CDSL Ventures Limited (CVL). 
  4. Application forms – Many brokerage firms and financial intermediaries require you to fill in an application form with some basic information, to start investing. 
  5. Cheque or bank draft - You would also have to submit a bank draft or a cheque along with the application form at the branch office. You can also choose to submit the application form at the designated Investor Service Centres (ISC) of Mutual Funds or Registrar & Transfer Agents of the mutual fund(s) that you wish to invest in. A cheque or bank draft will not be required if you’re investing online. 
  6. Bank statement or cancelled cheque - You may also be required to submit your bank statement or a cancelled cheque to validate your bank account details.

Now that you know the documents you need to provide, to start your mutual fund investments; make sure you read the mutual fund offer documents as well. The mutual fund offer document contains the details of the scheme offered by your Asset Management Company (AMC). It contains the Scheme Information Document and the Statement of Additional Information that help you ascertain the credibility of the scheme and the AMC.

Additionally, make sure you check the expense ratio for your mutual funds, which is the commission charged for proper management of your investments. When creating your investment plan, make sure you’ve considered the expense ratio, as it can have a significant effect on your overall portfolio. If you have higher assets under management, the expense ratio tends to be lower.

Also note that while making any mutual fund investments, you would be required to furnish some basic information, documents and even OTPs. Thus, it might help to keep your mobile phone handy, while investing. 

The overall success of your investment portfolio depends on your choice of mutual fund and your investment plan. While it may seem daunting at first, being prepared with proper research and a strong understanding of your investment objectives can go a long way in maximising your potential returns.