1. What is a Mutual Fund?
Mutual fund is an investment fund in which money is pooled from many investors to purchase securities like stocks, bonds, money market instruments, and other assets. Mutual funds are managed by asset management companies (AMC). In these AMC, their professionals keep an eye on your fund at all times so that a good return can be drawn from them, for this work they charge some amount which is their main source of income.
2. How Mutual Fund worked
This is the open-end professionally managed fund posited at one place and this fund is invested in the market. Which reduces the risk because if there is a loss at one place then there is profit at another place.
You can understand this in such a way that if a lot of money is placed in 100 funds in a fund, then even if there is loss in the stock of 40 companies in those 100 companies, then the profit of the stock of 60 companies is still profitable. This is the concept of mutual funds, which reduces the risk in them.
3. Who can invest in mutual funds?
Anyone can invest in mutual funds. One can invest from a minimum of ₹ 500. You can also invest in the name of your spouse or children. If your child is a minor (under 18), you will have to provide your information while investing in his / her name. You will manage the account until it reaches 18 years of age. Even partnership companies, LLPs, trusts and companies can invest in mutual funds.
4. Who is a Mutual fund right for?
For those who do not know much about investing in the stock market, Mutual Funds are a good option for investment. Investors can choose a Mutual Fund Scheme according to their financial goals.
5. Types of Mutual Funds
- Equity fund: These are funds that invest in equity stocks / stocks of companies. These are considered high risk funds, but provide high returns. Equity funds may primarily consist of infrastructure, banking, consumer goods company stocks.
- Debt fund: These are funds that invest in debt instruments. Such as the company’s debenture, government bonds and other real estate. They are considered safe investments and provide fixed returns.
- Liquid Fund: Under these schemes, the money is mainly invested in short-term or very short-term instruments. T-Bill (Treasury bill), Commercial Paper etc. for the purpose of providing liquidity. These have low risk with moderate returns and are ideal for investors with short-term investment deadlines.
- Balance or Hybrid Fund: These are funds that invest in a mix of Assets class. In some cases, the ratio of equity to debt is higher, while in others it is the opposite. This balances risk and returns. An example of a hybrid fund would be Franklin India Balanced Fund-DP (G) as 65% to 80% of the investment in this fund is made in equities and the remaining 20% to 35% is invested in the debt market. This is because the debt market carries less risk than the equity market.
- Pension Fund: Pension funds are mutual funds that are actually invested keeping in mind the long-term goal. These are mainly to provide regular returns around the time when the investor is ready to retire. Investments in such funds can be divided between equity and debt markets, where equities provide high returns with risk and debt markets balance the risk and provide low but stable returns. Returns from these funds can be taken as a lump sum or pension.
6. How to choose the right Mutual fund?
There are many different types of mutual funds available in the market, choosing one of which is not an easy task. For this you need to keep these things in mind.
- Firstly understand your needs.
- Next step would be to find out what your goal is?
Since there is always a risk with mutual funds, no matter how small, it is important that investors read their policy documents carefully before investing. It would be a good idea to read the document to make sure that they, the investors, really understand what they have invested and all the features that are available to them with that investment.
Also read: Sensex vs Nifty: what is Sensex and Nifty
7. Difference between Mutual Funds & Shares