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What is Mutual Funds?

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What is Mutual Funds?

What is Mutual Funds?


Introduction

  • Have you ever thought of investing your money somewhere else, but don't know exactly where should you invest?

  • This post will help you with clearing your doubts regarding investment.

  • There are many methods of investing your money - Fixed Deposits, Gold and Jewelry, Real Estate, Mutual Funds, Stock Market.

  • This post is regarding Mutual Funds and how to invest in Mutual Funds.
  • So, read this post and you will get What exactly is Mutual Funds? and How to invest in it?

  • So, start reading and then start investing. Lets go...


What are Mutual Funds?

  • Mutual Funds is a special kind of investment, where you can diversify your investment by investing in one place.

  • In this, you give your money to Asset Management Company (AMC), these companies collect money from people as investments. Then these companies invest your money at different places. Of course, all this is done under expert guidance. 

  • AMC's are the companies that specially work for Mutual Funds. People give their money to these companies. Then these companies invest that money at different places and then they give you your profits.

  • Mutual Funds can give you returns from 4-30 % with moderate risk. It all depends on the AMC's that invest your money.



What is Mutual Funds?
Diagram shows the circle of Mutual Funds

Types of Mutual Funds

  • The types of Mutual Funds depend on where the AMC's invest your money.

  • These can divided into 3 categories - Equity Mutual Funds, Debt Mutual Funds, and Hybrid Mutual Funds.

  • In Equity Mutual Funds, your money is invested in Stock Markets. So, the risk is also high and returns are also high. If your money is invested in a large company then it is called Large Cap Equity Funds, similarly Small Cap and Mid Cap for small and moderate companies.

  • Big companies have less risk than small companies. Similarly, big companies have small growth rate than small companies. 

  • Next type is Diversified Equity Fund, in this type small investments are done in several companies like large cap, medium cap and low cap companies.

  • Next is Equity Linked Savings Scheme (ELSS), this is a special type of mutual fund where you can save your taxes up to 1.5 lakh rupees on profit. Here, the investor invests your money where there is high return and high risk.

  • In Sector Mutual Funds, the money is invested in stocks of specifically a big sector like Agriculture sector, logistic, transport sector etc. This is a risky investment because if the whole sector crashes then you have 100% chance of losing your money.

  • The last type of Equity Funds is Index Funds, here funds are passively managed. The prices vary looking at Sen sex and Nifty.


  • Types of Debt Mutual Funds:

  • Debt Mutual Funds are invested in instruments like bonds, debenture, certificate of deposits.

  • These usually have low risks and low returns unlike Equities.

  • Bonds are basically money that Government borrows from its people when it needs. So, basically Government takes loan from common people. These are bonds. Then Government will return your money after a fixed interest.

  • Liquid Funds, are basically those Mutual Funds that can be easily converted into cash. It has a very low risk similar to Savings account. You may get up to 7% return on investments in Liquid Funds.

  • Gilt Funds, these are Mutual Funds where the money is invested in Government issued bonds. It has 0% risk. The interest rates may fluctuate.

  • Fixed Maturity Plans, these Mutual funds are almost similar to Fixed Deposits. These have low risk and these are invested for a specific time period just like FD's.

  • The third type of Mutual Fund is Hybrid Mutual Fund, these basically are a mixture of Equity and Debt Mutual Funds. Some people don't want all their money to be invested in stock markets. So some of their money is also invested in Debt instruments.

  • There is a term called Balanced Savings Fund, in this fund 70% of money is invested in debts and 30% is invested in stocks.

  • In Balanced Advance Fund, it is opposite, 70% is invested in stocks and 30% in debts.


What is Mutual Funds?



Pro's and Con's

  • ➤ Pro's


  •  It is Diversified.

  • Low Risk Due to diversification.

  • Affordable, you can start from small amount of money.

  • An expert person does all the investments for you.


  • ➤ Con's


  • You can or cannot trust the person 100%. Although, he is an expert, he may go wrong sometimes.

  • Initially, the agents took lot of commissions which is reduced now, but still it is a small disadvantage.




Conclusion


  • Prepare well before investing your money.

  • Watch out for risks. If you can, take risks or else play safe initially.

  • Understand the scheme properly.Take expert guidance before investing money.

  • It is easier than Share Market to understand. It also has low risk than Share Market. It can also give you bigger returns than Savings Account, Fixed Deposits etc.

  • If you want to learn about Share Market then follow the below link. It shall definitely help you to understand about Share Market and its working.




What is Mutual Funds?


Comment down below and ask us for any doubts or suggestions. Tell us your experience regarding Mutual Funds.
Thank you!!!


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