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Most of us have future goals and financial planning, but often end up with traditional investments to fulfil them. Even though modern investments like mutual funds and the stock market are not new, beginners mostly seem to consider them complex. However, investing doesn’t have to be complex.
With proper understanding and analysis, beginners can also make use of the right financial instruments. Although investments come with inherent risks, mutual funds are often considered as one of the most effective and beginner-friendly options. With comparatively lower risks, mutual funds may help build a diversified portfolio.
So, are you wondering how to learn investing in mutual funds or how it actually works? We have got you covered. Through this article, you will learn more about the key ideas of mutual funds, why they matter, and the steps involved in investing in them.
Therefore, by the end of this article, you might not only learn about mutual funds, but you might also analyse and invest in them with confidence.
A mutual fund is one of the most popular modern investments. As an investment vehicle that collects money from multiple individuals and invests in various assets like stocks, bonds, or other securities, mutual funds help build a diversified portfolio. By spreading these investments across assets, mutual funds help reduce risk compared to investments in single securities.
Another factor that makes mutual funds a good option for beginners is that they do not have to deal with it directly. Mutual funds are normally managed by professional fund managers or portfolio managers. These professionals collect investments from investors and make strategic decisions, aiming to generate optimal returns while managing risks.
Important features of mutual funds include:
Here is a hypothetical example of an SIP investment and its returns over a period of 20 years:
Imagine you invest ₹5,000 every month in a mutual fund that gives an average annual return of 12%.
To invest wisely and make informed decisions, it is important to understand mutual funds in detail. As a financial instrument that has the potential to contribute to your overall financial planning, let’s have a quick look at why learning about mutual funds is important.
As we have already discussed, mutual funds are not just an investment but a strong foundation for financial independence. So, through this section, let us have a step-by-step guide on how to learn investing in mutual funds.
You must study mutual funds and their operation before choosing your fund. A mutual fund pools money from multiple investors to invest in assets such as stocks, bonds, and money market instruments, offering instant diversification and professional management.
You earn returns through dividends, interest income, and capital gains when the fund’s holdings appreciate. The Net Asset Value (NAV), or the per-unit value of a mutual fund’s assets after deducting liabilities, is calculated daily by dividing the total asset value by the number of outstanding shares.
NAV is calculated daily using the following formula:
NAV = (Total assets – Liabilities) ÷ Total Units Outstanding
Another key concept is the Expense Ratio (TER), which represents the annual cost of managing the fund. Lower expenses mean more of your money remains invested and compounding over time.
Understanding these core financial concepts, such as risk, return, liquidity, and asset allocation, forms the foundation for all successful investing.
Mutual funds can be categorised into various types of investments. So, the second step in learning to invest in mutual funds is understanding the different types of mutual funds. This will help identify the category of investment that better suits you.
Understanding how to read a fund prospectus is one of the most important skills if you want to learn about mutual funds online. This legal document helps you determine whether a fund aligns with your investment goals by providing all the necessary information about the fund.
So, the next important step is learning how to read a fund prospectus. Important areas to concentrate on are:
Disclaimer: Always ensure you read the latest prospectus from the fund house’s official website to avoid outdated or third-party information.
Next, it is time to use the theoretical knowledge learnt so far practically. Initially, you can use free tools and online platforms to analyse mutual funds without having to invest real money.
Start by choosing a few funds from various categories, such as an index fund, a bond fund, and a large-cap equity fund. Examine metrics like the expense ratio and management fee using fund analysis tools or your brokerage account.
Here are some of the metrics you need to analyse:
The most successful investors are continuous learners. Keeping up with the latest developments in the financial markets and changes in the market trends enables you to modify your approach in response to shifting circumstances.
Track your progress with tools like investment calculators, webinars, and financial news websites. As your life goals evolve, review your portfolio frequently, rebalance as needed, and modify your asset allocation. To improve your learning, you can also look into available online courses or consult a financial advisor or robo-advisor.
You can develop into a self-assured investor who can patiently and purposefully navigate market ups and downs by remaining consistent, evaluating your performance, and embracing continuous learning. Remember, consistency and patience often matter more than timing the market.
So far, we have discussed mutual funds, the importance of learning about them, and the 5 major steps involved in them. What do you think after this discussion? Do you feel the need to learn mutual funds, financial planning, and money management more professionally?
If yes, FinQuo Versity might be a good option for you. The various mutual fund courses available at this platform will help you understand mutual funds more easily. From teaching the basics to educating on how to master them, these courses are suitable for both beginners and experienced investors.
Once you enrol in these courses, you will no longer be unaware of concepts like risk, returns, diversification, NAV, expense ratio, fund manager, different types of funds, and more, which decide your future in mutual funds and investments.
Finquo Versity offers a guided way to study mutual funds, build confidence in your investment decisions, and deepen your understanding of how markets work.
However, remember, courses at FinQuo Versity are designed purely for educational purposes and do not constitute financial or investment advice. Learners are encouraged to consult certified advisors before making investment decisions.
Uma Nair is a professional content writer with over 3 years of experience and a strong foundation in crafting engaging and informative content across diverse domains. Over the years, she has dealt with various niches, and her growing interest in finance has led her to explore the world of financial writing. As an English Language and Literature postgraduate, her educational background supports her ability to convey complex topics in easy and accessible content. In her free time, she stays updated on industry trends to continually enhance the value of her content.
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Ibnujala is a seasoned financial expert of Indian and Middle Eastern markets with an experience of over 15 years. His deep interest in neuroscience fuels his research in seamlessly blending finance and science. With a bachelor’s degree in law from India and an MBA from the UK, his diverse academic background makes him an expert in financial management and mentorship. In addition to being a seasoned investor and serial entrepreneur, he currently serves as the CEO of Finquo Versity.
Disclaimer: The information provided in this blog is for educational and informational purposes only and should not be considered as financial or investment advice. Stock market investments are subject to market risks, and past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a licensed financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages incurred from following the information provided in this blog.
Uma Nair
