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Making your first mutual fund investment

Over the last one year, there are many investors are keen to invest into mutual funds as they shift from physical savings to financial savings. What documents do you need or what schemes should they choose.

What do I need to start investing in a mutual fund?
To start investing in a mutual fund you need to be KYC (Know your customer) compliant. One way of doing this is using the physical eKYC form. Investors can fill this form, attach photograph, PAN card copy and a valid address proof such as Aadhaar, Passport copy, electricity bill or bank statements. This can be submitted along with the first investment form to a registrar or a mutual fund office. Some mutual fund websites or distributor platforms also allow eKYC using which you can start investing in mutual funds.

How does an investor choose a mutual fund scheme?
First-time investors should choose a mutual fund scheme keeping their goals, risk-taking ability and time horizon in mind. They could opt for goal-based planning using websites or the services of a financial planner or distributor. Investors could work out an asset allocation plan for themselves which guides them on what percentage they could allocate across asset classes like equities, debt and gold.

Typically if they wish to invest for a time horizon of one day to less than three years they could go with debt-oriented funds or arbitrage funds. For three to five years they could consider hybrid funds which are a mix of debt and equity. If their goal is 5-7 years away, then they can consider higher risk products like equity oriented mutual funds.

Investors should also read the scheme related documents and understand the investment objective of the mutual fund scheme, know the securities in the scheme where money will be invested.

There are so many fund houses offering equity, debt and hybrid schemes. How do you choose one amongst them?
As an investor one is entrusting the fund house to manage your hard earned money and hence it is important to choose one with care. Decisions taken by the fund house and its fund manager could have a significant impact on the investment performance of the scheme. Financial planners suggest investors consider the pedigree of the fund house before choosing one. Check how the schemes have performed, history of the fund house, management track record and performance of fund managers before zeroing down on a scheme.

Should investors look at past performance of the scheme they have zeroed in for investing? What clues can they get?
While past performance of a mutual fund scheme is not indicative of future performance or returns, wealth managers suggest investors should look at the long-term performance of periods of 3,5 and 10 years of the scheme they wish to invest in. They can choose funds that have consistently beaten their benchmark in that period. A scheme which beats its benchmark consistently across time frames indicates good fund management and efficient process of the fund house.
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