How to Choose the Right Mutual Fund Online: Key Factors to Consider

Over the past few years, investments offering a structured and diverse way to grow wealth that Indians most prefer are none other than mutual funds. The Assets Under Management (AUM) of the Indian mutual funds industry has seen an impressive growth from ₹ 9.75 trillion in 2014 to ₹ 61.6 trillion in 2024. With such remarkable growth, the question is not whether to invest in them but how to choose the right investment in a plethora of options that align with your financial goals. 

In this blog, we’ll discuss the key factors to consider when choosing the right online investment, the risks involved, eligibility, and the steps to buy the funds.

What is Meant by Mutual Funds?

Mutual Funds are a type of investment that pools money from various investors to buy multiple assets, such as stocks, bonds, or other securities. In this type of investment, the funds are managed by professionals to maximise returns while minimising risks. These professionals primarily decide which investments to buy and when to buy them.

Types

• Equity Funds: The funds where investments are made primarily in stocks of multiple companies to attain high returns. They include high risks and are suitable for long-term investments.
• Debt Funds: The investment made in fixed-income securities like bonds, debentures and more in order to get stable returns. For those looking to invest in the short to medium term and involves low to medium risk.
• Hybrid Funds: To balance both risks and returns, this type includes a mix of both equity and debt funds. 

Eligibility Criteria

• Age: Must be above 18 years of age. If minor, then investment can be made by parents or legal guardians.
• Bank Account: Investor should have an operational account.
• Documents: A valid PAN card and other valid documents should be present to prove the identity.
• Residency: With Indian citizens, NRIs can also invest under certain conditions.

Pros and Cons

Before going forward, all investors must understand the pros and cons of the funds:

What are the Risks Involved in Mutual Funds?

While funds are an exceptional option, they do involve the following risks:

• Market Risks: Stock market fluctuations may cause you to lose some or all of your investment.
• Credit Risks: When the bond issuer is unable to fulfil their financial obligations like not paying back a loan or making a payment on debt. 
• Liquidity Risks: The risk occurs when the funds have a lock-in period, i.e., an investor can’t withdraw their money quickly.

How to Choose the Right Mutual Fund?

When investing a large sum of money in funds, the question is often raised among investors. Check out the following key factors to keep in mind: 

1. Identify Your Goal: The first and most important step in investing is to know your goals, like the time frame you’re considering investing, expected returns, and more. Investor must have a purpose of investing like need funds for higher education, future security, home down payment, retirement, etc. to determine the category they’ll be investing in.
2. Risk Analysis: Risks are always a part of any kind of investment. When investing in funds, learn deeply about the risks involved and be prepared for it. Equity Funds come with higher risks while debt funds have stable or lower risk percentage.
3. Fund Performance: Research the market’s last 3-5 year performance and analyse why category is best to invest for the next few years. While it doesn’t guarantee success, but ensures stability. 
4. Check Expense Ratio: Mutual funds do include multiple fees, to manage the investor’s account. However, one must know about them and choose the one that offers a lower expense ratio and higher returns.
5. Learn About the Taxes: Investors, especially beginners, should be fully aware of all the taxes that the government will charge on their investments, considering funds are included in taxable income.

How do You Buy Mutual Funds Online?

Confused about where and how to start investing online? Here are the few steps that’ll help you in your journey: 

1. Download the best mutual funds app like Bajaj Finserv, which is trustworthy and most chosen by investors.
2. Open your account and complete the KYC (Know Your Customer) verification process.
3. Choose the right mutual fund based on your financial goals and risk appetite.
4. Start investing and submit an amount either a one-time lump sum or through SIP (Systematic Investment Plan)
5. Monitor your investments and returns regularly.

Bottom Line

Choosing the right investment may seem overwhelming, but once you understand and start getting returns, it will be easier and help you plan your future. Consider the above-mentioned risks and factors, select the top mutual fund app, and start making your investment plan and don’t forget to track them. Remember to stay informed about all the market trends, create a diversified portfolio and invest in various assets. Happy Investing!