The Basics of Investing in Mutual Funds

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No doubt you've got some plans for your future. Even if you don't, you're likely aware that you'll need some money for the future to meet your growing needs. But your needs aren't going to be met with the interest you get on savings accounts or your fixed deposits. So what do you do? You could try investing in mutual funds instead. There are various kinds that you could look up and pick the ones which are most likely to serve your own needs.

The one thing you need to keep in mind is that you'll have to understand your mutual fund investments - and you can't do this if you don't know anything about what the company does. If you don't know squat about a company's product, then you don't want to invest in it. This is because you don't know whether the company's product is strong, is likely to survive competition and so on. For starters, it's best to stick to things you know best.

Once you've narrowed down the companies and the products you can identify and know enough about, you can move to the next step: comparing the pricing. You want to look at how the company has performed, yes. But you should also look at how friendly the company is to share-holders and how well priced the shares are so that you can buy them. Even when you're looking at a company's past performance - don't invest because you see the profit is good. You're not looking at the profit but checking the volatility of the fund when you do this research. If you've noticed very high fluctuations, you might want to not invest, or at least invest very little in it - it is certainly a risky venture. Look at the fund ranking when you're researching, but take the ranking with a handful of salt - if the person managing the fund has changed then it is likely the results will as well.

You want to opt for diversified funds as much as possible. Don't invest in multiple companies in the same sector - that isn't what qualifies as ‘diversified'. The whole idea is to invest in entirely different sectors. This is because if a single sector goes into troubled waters, another sector which performs well is likely to make sure you don't drown. At the end of the day, you just need to do your research well and look for a competent fund manager to handle your investments. But make sure that you also keep an eye on them and that you ask questions when you don't understand something.

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