What is a mutual fund? Complete information

Photo by Adeolu Eletu 


A mutual fund is a trust that generates savings from investors who share a common financial goal. The money deposited by investors is invested by fund managers, which is invested by AMC, capital market instruments such as shares, bonds and other securities. The investment generates the return that is given in the ratio of units to the holders of units.

Why should we invest in mutual funds?

Mutual funds provide the following benefits:

Portfolio diversification
Depending on the investment objective of the scheme, a mutual fund invests in several types of securities. This expands the risks involved in different asset classes, even if the amount invested is small.


It allows small investment
Mutual funds allow investors to invest at least Rs 5000 and sometimes even less. This makes it possible for small investors to invest in the capital market.


Flexibility
Mutual funds allow unit holders to switch between the scheme and the schemes according to their requirements. However, keep in mind that changing plans may involve costs.

Transparency
Mutual funds regularly share information about the investment value of the unit holders and the portfolio of the scheme through personal communication and / or their website.

What are the types of mutual funds?

1. Investment funds: Investment funds mainly invest in shares of many companies. You win or lose by raising or lowering the price of shares. Capital funds are a good option if you want to invest for a long time. Equity investment funds carry a higher risk and, at the same time, have greater returns over the long term.

2. Mutual debt fund: These are low-risk mutual funds consisting mainly of government securities which include bonds and treasury bills. Investing in mutual funds is much less risky as compared to mutual funds and is good for investors who want to invest for a short time.

3. Balanced and hybrid funds:  These types of mutual funds combine debt and capital. These are medium risk mutual funds. In hybrid mutual funds, the debt manager determines the debt and equity ratio and depends on the expected return of the fund.

Is investing in mutual funds right?

Yes, if you want to invest for a long time and not if you expect to earn a lot of money in a short period of time. Along with this, it also matters which fund you are investing in. If you invest money in a fund that is well managed, then a mutual fund can provide you with very good benefits.

What is Mutual Funds SIP?

SIP (Systematic Investment Plan) Through SIP, you can invest the amount you choose every month in an automatic mutual fund. While doing SIP, you have to select the amount of investment you have selected and the investment date only once each month. Whenever the date of your investment arrives, the money will be automatically invested from your bank account through SIP.

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