CAREER + MONEY

5 ESSENTIAL STEPS IN MUTUAL FUNDS FOR BEGINNERS

Things you should know before trying a trade.

23.08.2021
BY HANUM FAUZIA
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For you in the range of 25-30 years old, try to consider trading mutual funds. According to Investopedia, a mutual fund is an investment company that takes money from many investors and pools it together in one large pot. The professional manager for the fund invests the money in different types of assets, including stocks, bonds, commodities, and even real estate. 

Mutual fund investments are becoming very popular with individual investors because of the benefits they provide. However, there are some things you should know before trying a trade.


Your goals and time horizon

Consider what goal you want to achieve by investing and your time horizon, the length of time you have to invest before reaching that goal.

If the time horizon to your goal is short, investing might not be the best solution for you. Check out our article on how to invest for short-term or long-term goals.


Risk tolerance and diversification

All investments have some level of risk, and the market is volatile. It moves up and down over time. You need to understand your personal risk tolerance. This means gauging how comfortable you are with risk or how much volatility you can handle.

 

Photo Courtesy of  Malte Luk


A good rule of thumb is not to put all of your eggs in one basket when investing. Instead, diversify. By spreading your dollars across various investments, you can reduce investment risk.

This is why the investments we outline below use mutual funds or exchange-traded funds for the most part, which allows investors to purchase baskets of securities instead of individual stocks and bonds.


Low initial investment

You can build a diversified mutual fund portfolio by investing as low as Rp 500,000 a month through a systematic investment plan (SIP) in mutual fund schemes of your choice. You also have the option to invest either as a lump sum or a systematic investment plan.

However, compared to lump-sum investments, a SIP can lower the overall investment cost while unleashing the power of compounding benefit.

 

Understand your risk profile

Your investments in mutual fund schemes should always be aligned with your risk profile and its suitability for your financial goal; because every mutual fund scheme carries some investment risk. It would be best first to consider your risk appetite and the suitability of the investment for your financial goal and then decide whether to invest in a particular financial product or not.

 

Photo Courtesy of Anna Nekrashevich


Professional fund management

Your mutual fund investments are managed by a professional fund manager backed by a team of researchers. The fund manager formulates the investment strategy for your asset allocation. The team of researchers picks suitable securities as per the fund’s investment objectives.

 

 

 

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