4 Crucial Tips For New Mutual Fund Investors

The funny thing about financial education is that it’s almost never formally dished out to most people. We learn everything from algebra to geometry but, most of us never learn how to save money, invest money or grow our wealth.

Therefore, it’s no surprise that most new investors find themselves in a tricky situation when it’s time to invest money. We’re thrown face-first into a whirlpool of financial jargon and more often than not our Google-based research tempts us to invest in mutual funds. But, we all know that mutual funds are subject to market risks and that we should read the offer documents carefully before investing.

But what does that really mean? How exactly should you approach mutual funds? Which are the best mutual funds to invest in? And how many mutual funds should you invest in any way?

As the Founder of Cube Wealth, I’m often faced with such questions and these are all undoubtedly crucial questions. Especially because we work hard for our money and it’s only wise to invest it smartly. I say this because, in the case of mutual funds, half knowledge can do more harm than good.

How To Start Investing In Mutual Funds

So, in this little piece, I want to impart a little knowledge on how you as a new investor should approach mutual fund investments. My only aim is to tell you how you can make the most of them. I know some of you will reach out to me personally on Twitter or LinkedIn despite me saying this but, for what it’s worth; these basic guidelines really will give you the direction you need to start out.

Get A Good Wealth Coach

A wealth coach is more than just an investment advisor, he/she is someone who will look at your overall financial well being. Understand that most people have little knowledge about mutual funds and bank wealth managers are often biased. You need to talk to a wealth coach you can trust. This is usually an independent third party who is an expert who is motivated to enhance your returns. They will give you guidance and prepare you for your financial goals beyond just investments. A professional wealth coach is usually someone who is not affiliated to any one bank or fund. They can help you set up an emergency fund, identify the right financial advisors etc.

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Consult A Qualified Investment Advisor

While wealth coaches give general life guidance of how to first prepare for emergency funds etc. an investment advisor is a regulated entity. They give specific advice on which funds to buy and when to sell. Our partner for this is WealthFirst. There are over 3000 mutual fund options, and many people pretend to be good advisors, but only a few have the track record to prove it. For example, there is one mutual fund on the Cube Wealth app that is 20 years old and has beaten the market by 50% every year. Find advisors who can direct you towards similar funds because picking the right fund is equivalent to winning half the battle. You can identify a good advisor by looking at their past experience, track record and speaking with those they have worked with in the past.

Start Small & Automate Investments

Don’t think of investing a big amount. It’s a misconception that you need a lot of money to start investing. You can start out with a simple SIP (Systematic Investment Plan). These plans will allow you to invest in Mutual Funds with as little as Rs.500/ Month. You can set an amount that seems reasonable but ensure it’s not inconsequential. The exact amount depends on your risk appetite, income, financial goals etc. Don’t rush things and keep in mind how compound interest works. A simple SIP calculator can help you on this front.

Secondly, if you rely on your memory and proactive nature to invest – you’re doomed. The best of us fall prey to investing during market highs and panic selling close to market lows. It’s not something you can always control and you simply cannot time the market. Therefore you shouldn’t leave investments to emotional decision making. Automate your investments through an ECS mandate that auto-debits a fixed amount every month/quarter etc. Use technology and mathematics to guide your gut and instinct.

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Be Patient & Don't Overthink

Investing is a long term thing. To put things in perspective in the world of investments, three years is a short term. So keep that in mind when you start out. You’ll have to sit back and ride a quite a few ups and downs. Prepare yourself for the journey and don’t overthink a simple SIP. Everyday market changes have little changes on your mutual fund returns in the long term unless something dramatic or drastic happens. So, keep yourself educated without getting anxious or nervous at every 2 point rise and fall. Mutual Funds will teach you that patience is indeed a virtue that pays. I highly recommend you learn this lesson at the start instead of learning it the hard way.

There are a million other pieces of advice I could give you but these few tenets are sacrosanct. Play it smart and stick to the rules until of course, you’ve grown enough to bend them to your benefit. Until then I wish you the best returns on behalf of me and the whole Cube Wealth team.

You can also watch this episode of The Cube Wealth show to understand further, how to start investing in Mutual Funds.