Top Ways to Start Investing in Mutual Funds in 2020

Gaurav Chakraborty
Gaurav Chakraborty
gauravc@orowealth.com

Anyone that lives in India would definitely have heard this famous catchphrase: “Mutual Funds Sahi Hai” or, Mutual Funds are excellent. As I am investing in Mutual Funds, I will readily testify that every claim made by these ads by the Association of Mutual Funds of India or AMFI is true in every possible manner.

Indeed, I’m accumulating a lot of wealth by investing little money in Mutual Funds every day and sometimes, every week. Now you might believe I’m some wealthy person and have enough money to invest in Mutual Funds every week or every month. So let me assure you, I’m an ordinary person like most Indians, drawing a monthly salary and some allowances from my job. And my salary is just enough to pay for my family’s and personal expenses and occasional entertainment or dining out. If I can do it, so can you. Therefore, I will tell you my secret about the top ways to start investing in Mutual Funds in 2020. The first step is to understand the different kinds of Mutual Funds before you begin investing.

Types of Mutual Funds to Invest With Little Money
If you’re planning to start investing in Mutual Funds with little money, here’re the various types of funds in India and their advantages.

Equity Funds
Equity Funds give you the highest returns over a period of years. However, they rank as ‘Moderately High Risk’ on the CRISIL Riskometer. Because these Mutual Funds consist of stocks of various companies that trade on India’s stock exchanges. The minimum investment in Equity based Mutual Funds starts from Rs.500 only for lumpsum purchases.

Gold Funds
If you can’t afford Rs.500, then go for Gold-based Mutual Funds. You can buy some units of Gold-based Mutual Funds with only Rs.100. Since the prices of each unit of Gold Funds are linked to the precious metal, you can’t expect much returns. These rank as ‘Low Risk’ on the CRISIL Riskometer.

Debt Funds
The minimum investment in most Debt funds starts from Rs.1,000 for lumpsum purchases. Mutual Fund houses invest your money in debt and other instruments of companies and government undertakings. However, returns aren’t that high. They depend upon the interest rates that the Reserve Bank of India announces regularly. They rank as ‘Moderate Risk’ on CRISIL Riskometer.

Balanced Funds
A Balanced Fund is one that invests in both- equity and debt. They rank as ‘Moderate Risk’ on CRISIL Riskometer. The fund manager decides on whether to sell equity and buy debt instruments or the other way round to ensure your investment is safe. However, they fetch moderate returns only. The minimum lumpsum purchase of Balanced Fund units starts from Rs.500.

Liquid Funds
These are your safest bet if you don’t wish to take much risk with your money. They rank as ‘Low’ risk on the CRISIL Riskometer. And you can sell Liquid Funds almost instantly if you need cash for some emergency. Liquid Funds, being low risk don’t give high returns. You can invest with as low as Rs.100 in Liquid Funds.

Fund of Funds
Fund of Funds or FOFs carry the ‘Extremely High’ tag on the CRISIL Riskometer. Because they invest on equities and other investments in foreign money markets and Equity on stock markets abroad. However, rates can fluctuate wildly depending upon economic situations of those countries. Usually, minimum lumpsum purchase to FOFs starts from Rs.500 only.

Thematic Funds
As the name suggests, Thematic Funds invest in stocks of a specific industry such as pharmaceuticals, infrastructure, IT and others. These are ‘High Risk’ on the CRISIL Riskometer. Because they deal with stocks in a single industrial sector. Returns are very high if a sector performs well. Minimum investments start from Rs.500 only.

Exchange Traded Funds
You’ll require a Dematerialized (Demat) and Trading Account to invest on Exchange Traded Funds or ETFs. Because ETFs are a type of Mutual Funds that trade on the stock market daily. Some ETSs cost as low as Rs.20 per unit and sometimes lesser. You can easily buy a couple of units only using your Demat and trading account.

There’re five distinct, top ways to start investing in Mutual Funds with little money in 2020. You can select anyone that suits your budget and needs to grow wealth.

New Fund Offer (NFO)
New Fund Offer or NFO is when a Mutual Fund makes its first appearance in the market. It is different from an Initial Public Offering or IPO of a stock. Because a unit of Mutual Fund in NFO has no specific value. It’s available for Rs.10 per unit or Rs.100 or sometimes, Rs.1,000 depending upon the fund house and type of Mutual Fund. You can accumulate quite a lot of units by investing in NFOs since the face value is very nominal. Therefore, for Rs.5,000, you can get as many as 500 units of a Mutual Fund. However, there’re various reasons that NFOs are not advisable if you wish to invest

Systematic Investment Plan (SIP)
Systematic Investment Plan or SIP is the most popular way to invest in Mutual Funds with little money. SIP means, you will invest little money in one Mutual Fund every month. You have to keep that money in your bank account and add the Mutual Fund house as a ‘Biller’ to your net banking portal. That amount of money will be deducted every month to get you more and more units of Mutual Funds. You can start an SIP by putting away as little as Rs.100 every month in your bank. It’s a form of disciplined savings. Over a period of years, your SIP gains more and more units and their value can rise in the market.

Lumpsum Purchase
As I explain earlier, you can buy a few units of a Mutual Fund with as little as Rs.100 in 2020. This means, you can invest in quite a few funds where entry level is Rs.100 and in multiples. And you can invest anytime when you have the money. Unlike SIPs, you can do a lumpsum investment with little money whenever you have spare cash and invest on several Mutual Funds too.

ETFs
Mutual Fund houses and Non-Banking Financial Companies (NBFCs) also offer NFOs or ETFs. Therefore, you can buy ETF units of Mutual Fund at fairly low rates during NFOs and Further Fund Offers. And if you have a Demat and Trading account, you can invest as little as Rs.20. It’s also possible to buy ETF units through your Demat and Trading account and sell them when the price rises.

Direct Plans
There’re four types of plans available to invest on Mutual Funds. These are Direct-Growth, Direct-Dividend, Regular- Growth and Regular-Dividend. The best among these to start investing in Mutual Funds with little money is the Direct-Growth type. Because it means you’re investing directly and there’re no commissions to agents as in the case of ‘Regular’ types of Mutual Fund investments. Whenever a Mutual Fund house or Asset Management Company or NBFC announces a dividend on their Mutual Fund you hold, a Direct-Growth Plan attracts more units. This means, the number of units in your portfolio grows. A ‘Dividend’ plan isn’t ideal for small investors since you’ll get very little money as part of profits.

Before concluding I’ll add that you have to complete Central Know Your Customer (CKYC) processes before investing. Any fund house or AMC will do the needful through various government agencies. Also, look for credentials of the Fund Manager before investing in a Mutual Fund. Therefore, include Mutual Fund investments as part of your wealth building drive in 2020.

Gaurav Chakraborty
Gaurav Chakraborty
gauravc@orowealth.com

Gaurav is an engineer-turned-digital marketeer. Also a personal finance blogger with experience in financial planning and crowdfunding sector. He is a part of the Marketing team at Orowealth.

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