Things you should know before you start investing in Mutual Funds - 2

In the previous article, we have covered the important terminologies and facts regarding mutual funds. In this article, we will cover another 5 important things related to it.

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1.)Regular or Direct

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A lot of people have doubt that what is difference between regular and direct mutual fund. The main difference between them is regular mutual funds involve a distributor commission whereas direct mutual funds have no middle agent. So always purchase direct mutual funds because everything is same between the two except extra commission.

2.)Tax on mutual funds

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Every mutual fund has taxation above a certain limit. For example, if we consider equity mutual funds, if you withdraw the money before 12 months from the date of investment, then you have to pay 15% tax on returns known as Short Term Capital Gain(STCG) tax. The same is case for long term investment (>12 months), you have to pay 10% tax on returns if your returns are more than ₹1 lac in a financial year. 

3.)Always plan a financial goal

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Always plan a financial goal before investing in any mutual fund even though it is for a short term. A financial goal can be anything like for example someone who wants to buy a Royal Enfield in the next 3 years. So he will plan the risk potential, time duration, liquidity, etc. according to his needs.

4.)NAV should not be the deciding factor

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Many people have the perception that the lower the NAV(Net Asset Value) lower will be the returns and vice-versa. This is not the case. NAV is not a performance indicator. It just represents the market value per share for a particular mutual fund. So don't buy mutual funds solely based on NAV.

5.)Past performance is not indicative of future results

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This is the most important factor in mutual funds. People tend to ignore it by looking at the returns that the mutual fund gave it in 1year/3year. So they blindly invest in them only by returns. Always assess the returns for the long term(5/10 years) so that you can get a rough idea about that fund and analyse their portfolio/major factors that affect them. 

How to invest in mutual funds?

You can start investing in mutual funds through any AMC website/app. There are many third-party apps like groww, ET money, etc. We are providing one mutual fund app link below.

Groww App. 

Hope you enjoyed the blog.

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