Advices Strategy

What Do You Mean By Mutual Funds?

Investing In Mutual Funds is a very popular option these days. Some mutual funds are even capable of doing double your investment if used it well for the long term.  In mutual funds, the fund house company collect funds from various investors and invest them in various market securities like stocks, bonds, and other money market instruments.  These funds are handled by professional fund managers who have the responsibility for investment in various securities and earn a profit on behalf of investors. The gain or loss was proportionally distributed among all shareholders.

“Mutual Funds Are Subject To Market Risks”- What Does That Mean?

Mutual Fund money is invested in buying stocks and bonds. The value incurred from mutual funds depends upon the performance of the securities. If your buying mutual funds then it’s completely funding manager’s responsibility to invest it with his/her expert opinion. Buying of mutual funds refers to buying a part of the performance of the securities be it profit or loss, all has to be bearded by investors. The fund manager doesn’t invest money in a single share but can divide that money into different portions and can use it to invest in different securities.

Difference Between Investing In Shares And Investing In Mutual Funds

Investing in mutual funds makes you free from various complex investment decisions. In it, an expert on your behalf takes decisions invests your money in various market securities or companies. Unlike shares, a mutual fund does not give voting rights to its investors.

Investing in shares is quite costly to process and demands high expertise. So if you don’t give knowledge of the share market then it is suggested to go for Mutual funds. It offers quite an easy process and investment plants starting from just INR 500.

Types of Mutual Funds

Mutual funds are categorized into multiple types on the basis of securities targeted and types of return. Following are the types of Mutual Funds-

▶️ Equity Funds

The mutual funds that are invested in stock are mutual funds. The investments probably expected to grow faster both in terms of profit and loss as well. These are best suitable for those who want to check for instant results as these opt an aggressive approach for investment.  Equity funds are further divided into different categories i.e. on the basis of companies- small-cap, mid-cap, and large-cap on basis of investment approach- aggressive growth, value stocks, income funds

▶️ Fixed Income

Fixed-income mutual funds pay a fixed set of returns. The money is generally invested in government bonds, debt instruments, or corporate bonds. People who want to play safely while Mutual fund investment then this is perfectly suitable for them. These funds have the least risk to invest in as the return is fixed and high.

▶️ Money Market Funds

The money market funds are very safe to invest in. Money is invested in short-term debt instruments that returns a little more amount than from normal savings account return. One needs not to worry about losing the principal amount that you invested, it’s safe.

▶️ Income Funds

Income funds are invested primarily in government, high – quality corporate debt until it gets mature and provides interest. The main motive of these funds is to provide steady cash flow to investors as only conservative investors invest in these kinds of funds.

▶️ Global Funds

Global Funds mutual funds are those in which investment is only done in foreign assets that are outside your home country. These funds are tending to have a unique country’s political and economic risks and gains. It actually increases diversification and reducing risks as return from foreign countries’ assets may be uncorrelated with returns at home.

▶️ Balanced Funds

Balanced funds opt hybrid kind of approach. It splits money among various types of investments and tries to maintain a balance of higher returns by reducing risk to minimal. So the investment is done a mix of equities and income securities.

Things To Know Before Investing In Mutual Fund

1. Choose For A Professional Fund Manager

Fund manager plays an important role in making your investment a pure success. So choosing a professional fund manager is your task. Check for the experience and work progress of the fund manager so that you can ensure that your money is in safe hands.

2. Know About Actual Investment Allocation

Being investor, you have complete right to know that where your money is actually getting invested? Whether it is invested in debt, equity or debt + equity? It is very important.

3. Study About Funds Performance

It’s important to study funds past performance in order to get an idea of fluctuations in the profit rates. But keep in mind that past performance doesn’t guarantee future. So don’t rely on this factor only. Past results are not so reliable so in this case, one can’t rely on star performances of the past year. The balance of all factors is necessary.

Tip: Check for the fund consistency and fund’s performance in different cycles rather than ranking.

4. Entry & Exit Charges

Investors tend to pay multiple types of charges before making an investment in mutual funds from where the mutual fund companies make money. So before investing it is important to know about these fees and loads of mutual funds. Entry load refers to fees that are charged when you join the mutual fund and exit load is charged when selling your mutual fund units within a particular period of time. So choose to invest in funds with low entry & exit loads.

5. Choose For Find Type That Best Suits You

Our ultimate goal is while investing in mutual funds is to get maximum benefits and gains. So for this study for the types of mutual funds, your capacity to invest, and what amount you are willing to invest? From the available types of mutual funds, it’s your call to pick one of multiple after a complete analysis of your requirements. The fund manager can advise you rest depends upon you as an investor.

6. Diversification

There is diversification in mutual funds that means there are fewer chances of instant rise or fall. Due to diversification, if one investment falls one can expect to gain from another investment.  As a result, there are lessee’s chances of risk to investors. A mix of securities can be purchased for a balanced portfolio. Try to take the maximum benefit of diversification.

Advantages of Mutual Funds

  • Mutual Funds are easy to understand. There is no need to have knowledge about stock market, finance and economics, even a common man can take the benefits of Mutual funds.Diversification for investing in securities. If one brings loss to you other can bring profit as well.
  • It is very easy to buy mutual funds be if from brokerage firms or online.
  • Multiple types of mutual funds are available in the market so one can opt any type of mutual fund as per their choice to ensure maximum benefit.
  • One can start investing in Mutual Fund from just 500 INR which is quite affordable, everyone can do it.
  • Your money is in the hands of professionals so one can get quite relaxed with this aspect. Professionals will use best of their skills to ensure profit to their investor’s amount as they invest hours of research and analysis of the mutual funds before doing any investment.

Disadvantages of Mutual Funds

  • Our profit also gets diluted with the concept of diversification. If it decreases the risk of loss to the investor on the same hand it also lows down the chances of profit.
  • Money invested, gets block down for a certain period of time. Exiting from the mutual fund scheme is an expensive deal as that portion doesn’t bring any interest to the investor.
  • Sometimes costly management fees for mutual fund investment make an expensive affair. So make sure to make all estimates and calculation before investing.

Final Verdict

Mutual Fund is an easy approach for investment. Choosing the Best Mutual Fund to invest in is quite a complex task. With little research and keeping in mind the following factors, one can expect success in his first investment in Mutual Fund.

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