We live in an age where financial planning has become an indispensable facet of our lives. It does not suffice to earn well and save a significant percentage of said earnings; it is also necessary to invest your savings in profitable avenues.
The earlier you begin investing, the more you can benefit from the power of compounding. One of the avenues you can invest is in market-linked instruments, including mutual funds. You can invest in mutual funds directly through the fund house.
Alternatively, you can use your demat account to invest in the preferred mutual funds. In this article, we shall discuss how to open a demat account, and how to select mutual funds for your investment portfolio.
What Is A Demat Account
A demat account is an account which stores your market-linked securities in a dematerialised form. You can select a type of demat account that aligns with your investment requirements and budget. While a Full Service Demat Account offers a host of features but carries a high cost, a Basic Services Demat Account offers basic features at minimal cost. You can open demat account online by choosing an authorised depository participant and completing the online account opening process.
What Are Mutual Funds
A mutual fund is a type of investment instrument which collects and pools funds from various investors and invests in equity, debt, and other securities in various combinations.
There are various types of mutual funds, for instance, equity funds (investing in only stock), debt funds (investing only in debt securities), hybrid funds (investing in a combination of debt and equity), tax saving funds (entailing a long lock-in period and tax savings). Due to their diversity, ease of investing, and returns, mutual funds are considered one of the most prominent investment instruments in the securities market.
Process To Select The Right Mutual Funds For Your Investment Portfolio
Since there are various types of mutual funds to choose from, you must take a systematic approach to selecting the best mutual funds for your investment portfolio. Once you have made your choice, you can use your demat account to make the investment. You can also invest directly through the Asset Management Company for the fund. Here are some steps you can follow to select mutual funds for your demat portfolio.
- Ascertain Your Investment Goals And Preferences
The most important factor in selecting the right mutual funds for your investment portfolio is having clarity on your investment goals and preferences. You must ask yourself questions such as:
- How much do I wish to invest in general and in mutual funds in particular
- What type of mutual funds should I invest in
- How long do I wish to stay invested in a particular mutual fund
- How much risk am I willing to expose myself to in my mutual fund investment
- What is my aim in a mutual fund investment – returns, stability, liquidity, tax savings, or a combination of the above
- Research And Assess Various Mutual Funds
The next step is to carry out research and assess various mutual funds on metrics such as expense ratio, past performance (returns), risk exposure, liquidity, asset composition, etc. This step would be made easier if you have already answered most of the questions mentioned in the first step.
- Assess The Fund House And Fund Manager’s Credentials
While assessing mutual funds, you must also research the credentials and past performance of the fund house and the fund manager/s. Both of these entities are pivotal to the asset allocation, returns, and stability of a mutual fund.
- Compare Mutual Funds On Various Key Metrics
Having assessed various mutual funds on key parameters, you must compare them and shortlist the funds that align with your investment goals and have a strong score on the different parameters. For instance, if you wish to invest in debt funds, then you must analyse and compare debt funds that fall within the investment timeline, risk tolerance, and investment capacity you have, and have strong scores vis-a-vis returns, liquidity, fund managers, expense ratio, etc.
- Decide The Mode Of Investment
Once you have selected the mutual funds you wish to invest in, you must determine whether you want to make a lump sum investment or opt for the SIP (Systematic Investment Plan) route. Both modes of investment have their pros and cons. As the final step, you can search for the selected mutual fund in your stock broker’s trading platform and make the investment. The money shall be debited from your trading account and the mutual fund units shall be credited to your demat account.
The Bottomline
There is no specific process to select the right mutual funds for your investment portfolio. The selection depends on your investment goals, risk appetite, life stage, the types of funds available in your preferred spectrum of funds, etc. You can open a demat account online and use it to invest in mutual funds through a seamless process.
