6 Questions To Ask Yourself Before Investing In Mutual Funds

There is a very thin line between saving and investing your money. People invest their money to witness financial gains in the future as many investment plans help your money to grow. Investing money is beneficial for everyone. Be it small time investment or long term, the sweet fruits of its profit is enjoyed by everyone.

Every now and then we hear someone around us saying, “I need to start investing now” or “Where should I invest my money?” If you are facing the same questions with your investment options, we suggest you to ask the following questions to yourself before taking a step towards investing in mutual funds.

Do I have a basic finance plan?

Everyone who is earning should have a basic finance plan. This includes daily expenditure details, savings details, prospective expenditure and balance amount details. By having this information you can determine where you should cut down your expenditure, how much money you can save for investing in mutual funds, determine what are your financial needs and your financial status. Tracking your daily, monthly and yearly rate of expenditure as per your salary will guide you to choose a short term or long term investment plan.

What are my personal and financial goals?

Personal life goals and financial goals go hand in hand. Be it buying a house, a car, getting married or travelling the world, everything needs hefty amount of funds in today’s economy. Taking a personal loan or swiping your credit card may not come handy every time. If you have set your goals, you can plan to fund them financially from an early stage by investing your money in mutual funds. Let’s say you are 23 years old and you have decided to buy a car by you turn 25 and buy a house by you turn 30.  You can start investing in equity for your house goal and in debt mutual fund for your dream car. You may have to take a loan for fuller payments of these commodities but you can easily make the down payments from your profit earnings in mutual funds.

If you haven’t decided your personal and financial goals yet or don’t know exactly what you want in future, still start investing in mutual funds to avoid future finance crunches.

Do I have a finance plan for my family?

In India people leave in nuclear or joint families. Even though living in a nuclear family, children always care for their parents in need of emergency; so before you start investing in mutual funds check if you have covered them from any financial crisis. Like have you bought a life insurance or accident policy for them? If you haven’t, get one before obligating yourself in mutual funds. Even if you already have life insurance or accident policy for them invest in mutual funds for their medical needs as life insurance or accident policy many times do not cover some specific expenses. Decide the investment sum as per the total number of family members.

If you have children, you should start investing for their future education plans as education is becoming expensive day by day. No matter what their age is, you should start putting your money in long term equity funds.

What is the source of my earnings?

Your source of earning and your type of profession highly influences your mutual fund investment. If you are a salaried employee earning specific amount of sum every month it becomes easier to plan your investment as you can easily plan your other expenditure needs and financial obligations. But if you are a self employed or freelancer, your earnings may be fluctuating thus making regular mutual fund investments dicey.

Irrespective of your profession, if you are earning in small sums, you should opt for systematic investment plan i.e. SIP. If you earn large amount in infrequent period you should save in large amount by choosing lump sum investing.

Have I read the fine print?

Investing in mutual funds is subject to market risk. Thus we suggest you to read the offer document carefully before investing in market. No matter how lengthy or boring the document be, read and understand what you are signing. If you do not understand or agree with any term/s, talk to concerned personnel for assistance. Do not sign any document or invest in mutual funds without reading the fine print on contract.

Is my investment tax efficient?

In the finance budget of 2018, finance minister Arun Jaitley declared that long term capital gains in equity will be levied for 10% tax without indexation benefit. If your investment is earning you profit of more than Rs. 1 lakh in a year, you will have to pay 10% tax against your profited amount. It may affect many long term investors. So know before investing whether your investment in mutual funds is tax efficient or not.

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