Mutual Funds 101 – A Brief Guide For Millennials

Millennials are the ones born into the first wave of global digitization. As a result, the way most millennials invest their hard-earned money is entirely different from Gen X. you may have already heard your parents and older relatives complain about how you don’t save any money for fixed deposits (FD) or term deposits (TD). That is probably because millennials want to explore the world of mutual funds and investment. The easy access to mutual fund information and investment details has enabled the youth to bypass the never-ending financial planning for the long-term goals.

Millennials are ready to take more risk than their predecessors. They are progressive and, somewhat, more aggressive in their methods of investment as compared to Gen X. however, most millennials don’t have the time to complete the paperwork necessary to invest the money physically. It is a simple calculation – the longer the period of investment, the more rewarding the returns become. As a result, most millennial investors have at least one mutual fund investment by the time they are 28 years old.

How can you invest in mutual funds?

The harsh truth is that leaving money in your savings account and FD might not grow as much as you would like to, considering the skyrocketing rates of inflation in the country. There is only one way to ride the inflation out and find yourself in a financially comfortable position 20 to 30 years now, and that is by investing in mutual funds. Investing in mutual funds can help you achieve your long-term goals, provided you are investing in the right places.

Here are the different ways you can invest in mutual funds –

Equity trading is one of the time-tested ways to invest money for higher returns. It might have high volatility, but long investment terms can mitigate volatility and increase security. For reaping high profits every time you invest in equity, you need to ensure that you are researching in-depth and paying attention to the analysis of the fund’s past performances.

As we have mentioned before, millennials hardly have the time for thorough research. Therefore, a majority of them prefer to invest through mutual fund investment companies like ICICI Pru mutual fund. They invest in mutual funds, where they can invest lump sums at one go or invest in monthly instalments (via SIP). In this case, you will have a fund manager monitoring your investments. While you may not earn as much as you would by investing in trading stocks, you will enjoy higher security and lower risks.

How to choose the right mutual funds?

Once you have decided that you want to invest via a fund house, you still need to pick the right mutual funds for the maximum gains. While it is almost impossible for any novice to predict the performance of a fund in the upcoming months. Therefore, it is imperative to distribute your funds smartly among multiple funds.

Some experts recommend the core-and-satellite approach. Studies show that it is beneficial for young investors to invest 70% to 80% of their money in the core funds, and the remainder of their cash in satellite funds. Moreover, you can choose to keep 3 or more funds in the core that encompass large-cap and small-cap funds. You can include sectoral and multi-cap funds for your satellite investments. Since the satellite investments typically experience higher risks, investing the lion’s share in core funds can mitigate the risks. The core investments can act as your shock absorbers in the long-run. Visit the official ICICI Pru mutual fund site to learn more about investing in mutual funds.

Before you go ahead and split up your investment, you need to consider a few factors that will determine the types of funds you choose –

What’s your risk appetite?

You may have already understood that not all instruments of investment were created equal. While most of them are capable of multiplying your fortune, some are riskier than the others. Equity funds are high risk, debt funds are moderately risky, and liquid funds bear the least risk of them all. In most cases, the returns are directly proportional to the risk you are ready to take. Always narrow your choices down after assessing the risk each time.

Have you thought about your goals?

What are the goals of your investment? Do you want to save up for the down payment of your first home? Are you thinking about using the returns to begin your own business? Depending on the goals, you should decide the tenure of your investment.  Most importantly, you should determine the level of risk and estimate the returns depending on your financial goal. Taking stock of your financial goals should give you a realistic timeline for your investments.

How’s the fund performing?

It is difficult for any novice to keep track of the funds and their performances every week. However, several dedicated market apps can help you see the performance of the fund in the last few quarters in graph form. Check the fund’s performance carefully on the ICICI Prudential Mutual Fund app for the last couple of years and compare the best schemes available to you right now. Always choose one that has been performing steadily well in the previous few years.

What do you know about your fund manager?

Investment professionals are not always the same. One can be better than another. You need to choose someone who understands your financial goals and understands the market too. How much you make at the end of the investment period will significantly depend on the performance of your fund manager.

What’s the fund’s TER?

The total expense ratio or TER of a fund includes 2% of the investment that goes into the operational expenses. It influences the earnings of the investor. Always consider the TER of a fund before you invest. Most importantly, you should remember that SEBI has enabled the investors to earn more by capping the TER of several mutual funds. There are a few funds that charge a high TER, but they perform comparatively better than the others. However, that is not the norm. If you want to limit your TER, you should be able to find many mutual funds with a low TER as well.

There is something for every type of investor in the equity and mutual fund market. You can invest in just equity, only SIPs or pick a hybrid scheme that involves a mix of debt and equity. While the choice is always yours, it is essential not to forget the dedicated research you must put in to take matters into your own hands. The MF-beginners should stick to fund houses that have been helping people invest money and enjoy high returns for years if not decades.


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Written by Tom Clark

Content AuthorYears Of Membership

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