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Mutual fund for beginners | How to select the BEST Mutual Funds - YouTube
Channel: Groww
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If I tell you
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that I can only save 10,000 rupees every month
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but a few years later
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Instead of ten thousand
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I want one crore,
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you would say I am joking.
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Because I cannot make
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one crore from ten thousand rupees.
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But friends,
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if you invest 10, 000 rupees every month
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for the next twenty years
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in an asset that gives you only 13% returns,
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then after twenty years
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the money will become more than one crore.
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Hello, friends.
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I, Jagdeep Singh, welcome you to
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Groww channel
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Mutual Funds are good.
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We all know that mutual funds are good.
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But which mutual fund is good for me?
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which mutual fund is good for you?
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This we don't always know.
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In this video,
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we'll talk about five points
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you have to keep in mind
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while choosing the right mutual fund.
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And at the end of the video
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I'll tell you something interesting
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if you have deposited money in bank or FD
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there is a type of mutual fund
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in which if you invest
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will give you higher returns than bank
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and the risk is negligible.
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How we do start our investment journey?
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Normally in India
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people like me would start investing
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with encouragement from friends.
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Like my friend called me one day and said
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"I have invested in mutual funds."
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"it gives good returns."
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"You too should invest."
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So the first trigger point is your peers.
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Secondly, how do we choose our mutual funds?
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We go to a random website
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take a look at its past returns,
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where the returns are high, we invest there.
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Is this the correct way of investing?
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No, friends.
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This is not the correct way at all.
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Because, yes, by looking at the past returns
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you get to know its past performance.
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But if you are investing today,
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you get returns in the upcoming days.
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And through research
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it is not difficult to find good mutual funds.
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I am going to tell you those five factors
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using which
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you can choose the best mutual funds.
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First point: goal
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when we are young,
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we have academic goals.
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When we go to college,
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we have career goals.
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When we are working,
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even then we have goals for future.
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But friends,
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why do we forget to have goals
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when it comes to investing?
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Where goals are very important,
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we don't remember our goals
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and invest anywhere.
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So whenever you invest in a mutual fund,
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the most important
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is your financial goal.
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Which you would like to fulfill
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through your investment.
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And the remaining factors that I will tell you about,
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they are all based on your goal.
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Goal could be anything--
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small or big.
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Like you want to buy a car after a few years
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you want to buy a house
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you want money for your children's marriage
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or you want to retire after a few years.
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Or it is also possible that you don't have a goal.
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What do you do then?
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You will have to invest your money somewhere
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so that your wealth would grow.
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This is called wealth creation.
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So first of all,
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before you invest
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decide what your goal is.
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And then decide how to invest.
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After goal, the other factors are
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duration and risk.
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If I talk about duration and risk
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these revolve around goal.
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These three factors are interlinked.
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How?
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I will tell you.
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Assume that I got a job today.
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I wish to own a car after three years.
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For that I will need ten lakh rupees.
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So buying a car became my goal.
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The ten lakh rupees is my first financial goal.
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When do I want to buy a car?
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After three years.
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So the three years is my duration.
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Now you must be thinking
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I told you about goal and duration
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but not about risk.
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That's because I think risk
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is a very important topic
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which needs to be discussed in detail.
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So, friends,
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risk is, when we invest money somewhere,
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the chances of its value going lower instead of higher.
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It means, if you invest 100 rupees,
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there is a chance that instead of 105, it
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could go down to 95.
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The chances of it going down
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and how much you can bear it is risk.
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And risk is personal for everyone.
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Friends,
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risk and returns are linked to each other.
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If you want more returns,
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you will have to take more risk.
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On the other hand, if you take more risk
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you need not necessarily get more returns.
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Come on, let's discuss some goals in detail.
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Which mutual fund is suitable for which goal.
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Let's talk about the first goal.
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I want to buy a car after three years.
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The duration of my goal is three years.
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Which mutual fund should I chose for three years?
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Friends, always remember this rule:
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if you are investing for less than three years
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try to invest more in debt funds.
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The risk is less in debt funds.
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although the returns is also less,
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but not very much.
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But if you want to invest for a short period of time,
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you should invest in debt funds.
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As you can see from the screen,
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you want to buy a car after three years
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for six lakh rupees.
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From now, every month
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you will have to invest 15,000.
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I told you,
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if your investment horizon is less than 3 or 4 years,
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then you should invest in debt funds.
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So I have taken the average returns
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of debt funds as just 7%.
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If you invest, from today,
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15,000 rupees every month in debt funds
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in which the average returns is 7%,
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your goal will be achieved in three years.
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You will get the investment value of six lakhs.
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As you can see on the screen,
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if you want to invest for a very short period,
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you can choose liquid funds.
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Similarly, the options are
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ultra short term, low duration,
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short term, mid term,
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long term and gilt funds.
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It is not necessary that
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you make only short term investments in debt funds.
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If you want to take very less risk,
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and make investment on longer term
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then you can use debt funds
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for investment.
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On the screen
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at the end you can see a special type of fund
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called gilt fund.
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Gilt fund is a special type of fund
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that invests only in government securities.
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For example, government bonds,
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municipality bonds
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and bonds of state governments.
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So it is relatively safer.
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In the last one year,
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gilt funds have given more than
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12% returns.
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Now let's go to the second goal.
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My second goal is that I want to buy
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a house in ten years.
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So my goal is ten years,
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my duration is ten years.
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When the duration of your investment
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exceeds three years
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there is a special case of mutual funds
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that we call equity mutual funds.
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The specialty of equity mutual funds is that
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though your risk taking capability should be more
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you get more returns.
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In this case,
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when your duration is more than three years,
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you should keep your portfolio balanced
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between debt mutual funds and equity mutual funds.
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To explain it in simple terms,
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if you like to take more risks,
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you should buy more equity mutual funds
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rather than debt funds.
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If the duration is the same
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but your risk appetite is less,
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then you should buy more debt funds
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than equities.
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Let's do the calculations for our second goal.
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You want a house
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ten years from now.
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Its value will be 50 lakh rupees.
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If from today
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I make 25,000 rupees investment
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every month,
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as I told you
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our duration is ten years
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So I will invest in debt as well as equity.
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If my overall returns is 10%
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from both,
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then my investment goal will be achieved.
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my investment value will reach 50 lakh rupees
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after ten years
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using which you can fulfill
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the dream of buying a house.
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Like I showed you different types of debt funds
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there are different types of
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equity mutual funds too.
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As you can see on the screen,
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Small cap mutual fund,
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mid cap mutual fund,
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large cap mutual fund,
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and multi-cap mutual funds.
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If we start from large cap funds,
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large cap equity mutual funds are the mutual funds
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that invest in large cap companies.
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Large cap companies like Reliance, Kotak Mahindra Bank
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the big companies.
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So large cap mutual funds
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that invest in equities
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have lower risk when compared to
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mid cap and small cap funds,
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and so is the returns.
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Likewise,
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small cap mutual funds are those
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that invest in small cap companies,
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or small companies.
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Let's talk about my third goal.
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Imagine that I am 28 years old now.
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I want to retire 32 years from now.
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When I retire I need money
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that will take care of my basic needs.
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So friends,
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now my duration is 32 years.
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When the duration becomes 32 years
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or long
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As I mentioned there are types
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of equity mutual funds:
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small,
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mid
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and large cap.
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So if we talk about longer duration,
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my risk appetite is slightly bigger
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I can take more risks.
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In that case,
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the investment I made in equities
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I can invest more in small cap or mid cap
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rather than large cap.
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That way I can balance my overall portfolio
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because I invest some money in small cap
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some in mid cap
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some in large cap
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and also some in debt funds
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so that my overall portfolio is diversified,
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risk is more
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and I get more returns.
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Let's discuss the third goal.
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Like I told you
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I want to retire after 32 years,
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and I need 5 crore rupees to retire
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to fulfill my basic needs.
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For that I will have to invest
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in both debt and equity.
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If my duration is 32
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it is quite high
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so I can invest in small cap
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and mid cap equities.
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If I take more risk,
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I can expect more than 10%,
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I can expect 12.5% returns.
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If I invest 12,000 every month
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on debt and equity
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in the future,
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for which I expect
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only 12.5% returns
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in the next 32 years
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my money will become five crores.
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Past performance:
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how your mutual fund performed
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in the past.
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As I told you in the beginning,
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past performance doesn't tell you
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about future performance
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but it tells you about
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the fund manager's capabilities
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how market was in the past,
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how other mutual funds performed then
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and how your mutual fund performed.
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You should always compare
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the past performance of your fund
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with other mutual funds of the same category.
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If I would like to invest in a mid cap fund,
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and look at the returns of the last three years
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compare the returns to other mid cap funds
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in comparison, if the returns are good,
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the fund is relatively better.
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If it is not better,
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then the fund has not performed well.
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Come on, now let's talk about the last point.
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Expense Ratio.
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You might know that when you invest
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your money goes to an asset management company
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that will invest it on your behalf
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in either debt
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or equities.
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They too have expenses of
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running their company.
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This they take from your money
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so they can run their business.
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This we call Expense Ratio.
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Normally, the expense ratio ranges from
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zero to 1.5%.
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So when you think about investing
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remember to check the expense ratio.
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The more the expense ratio
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the more your expense will be
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as an investor.
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The less it is
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the better it is for you.
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As I told you,
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to choose a good mutual fund,
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you have to look at its past performance
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and compare it with the category average
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and also, expense ratio
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and the fund manager's profile
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are also very important
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in choosing a good mutual fund.
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You can find the link to download Groww app in the description.
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Or you can go to Groww website
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you can learn all these details very easily.
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You can also compare your
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mutual fund with other mutual funds.
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I had told you that I will tell you
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something if you have kept money in banks,
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in savings account or FD,
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there is a better investment option,
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where risk is very less,
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almost negligible.
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but you get better returns.
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And that is liquid funds.
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If you invest in liquid funds
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you get almost 7% returns.
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If you use Groww app
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Groww gives you multiple options
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of investing in different liquid funds.
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In some liquid funds, you can do
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a one-click withdrawal
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absolutely free of cost.
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If your money is in savings bank,
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if it is not of any use,
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invest in liquid funds.
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If ever the need arises,
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you can make a one-click withdrawal
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to transfer it to your savings bank
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through Groww app.
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Friends,
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if you liked this video,
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please like it.
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Subscribe to our channel
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because we are coming up with
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a series on mutual funds
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in which we will tell you
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about the basics of mutual funds,
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how it works,
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and how you can invest in them.
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You must be thinking that each one of us
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have different goals and durations
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and can do different savings.
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To calculate the amount suitable to you
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go to Groww's SIP calculator
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(the link is given below).
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In that you can calculate
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your savings amount,
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your duration,
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your overall value
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required to meet your goal.
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