Mutual Funds simplified-College students edition

While the stock market is a known concept to college students, the risks of fluctuation as well lack of knowledge makes it a “risky” option while other investments like Fixed Deposits and Recurring Deposits are considered “safe” as the returns are fixed.

However, returns in FDs are minimal whereas mutual funds can give you higher returns over a course of time. But most people are unable to look beyond the risk and shy away from mutual funds. So what exactly are mutual funds?

Simply said, Mutual Funds are the perfect middle ground for all kinds of investors. A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy units in mutual funds.

Who can invest in mutual funds?

The answer is simple -

1)If you’re above the age of 18

2)Can invest a minimum amount of ₹500

3)Possess identity and address proof like Aadhar, PAN, Driving License and Bank account statement or passbook.

Sounds cumbersome and paper-heavy? There are simple, online platforms available where you can start investing in just 5 minutes.

The basic checklist for students before investing in mutual funds

These 6 steps can act as an easy guideline to understand how to, when to, how long for and how much to invest in mutual funds

1)Ensuring that most debt is paid off – In case you have debt, it’s important to pay back a portion of the debt every month and try to soon be debt free. For the demographic of students, an education loan or student debt should be managed carefully.

2)Having an emergency reserve- Having some funds in your bank account in case of a personal or professional emergency for at least 6 months is necessary to keep in mind before investing in mutual funds. This can also be parked in the safe category of mutual funds known as liquid funds which can give 1% higher return than your bank.

3)Assessing income and expenses for the month- It’s important to understand how much money you earn/receive every month and how it can be allocated towards various expenses of yours.

4)Identifying surplus funds- The surplus left every month can be used for investment and can be as minimal as ₹500.

5)Insurance needs are met – Having an insurance like health or term insurance is necessary for emergencies in the future and to cover any risk and should be prioritized before you start investing.

6)Assessing your risk profile and goals – As a college student, it’s difficult to think for what purpose money needs to be grown or invested but it could be any goal like a new phone or a car after a few years. The duration of investment is very important as long-term investment leads to capital appreciation and higher returns in the long term. If you are only going to invest for a short period of time, you will derive lower returns.

Investments can seem overwhelming for a beginner but there are tools and content available that can help you understand the basics.

Download and sign up at AssetPlus and speak to our expert financial advisors who will help you wade through the jargons, simplify the investment process for you and construct a portfolio based on you and your financial needs.