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What is mutual fund? Everything you need to know

If you are reading right now then you must be either interested in investment related issues or looking to invest in mutual fund further ahead. Then I must say, you are in a perfect place to grasp knowledge about mutual funds.

This article will provide all the information from scratch to the expert level regarding mutual funds. Moreover, I can assure you that you will be quite confident and will possess a positive outlook towards investment sector after reading the post.

Just give a few minutes to this article and you will inhale all the valuable wisdom which gives you an edge over most the people related to this field. I know how boring it can be an uphill task of learning about the finance sector, stocks, bonds, mutual funds, etc. Moreover, with the hectic busy schedule, time is also a factor which is holding us back to grow and learn.

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So that’s why we tried to provide you every information possible regarding mutual funds.

Without wasting much of your time lets embark on.

What is mutual fund?

A mutual fund is an investment alternative in which thousands or even lakhs of investors like you and me pool or put their money. After that, a fund manager( professional in the finance sector) uses that money to buy stocks, bonds or other equities of different companies across varies sectors.

So a single mutual fund can contain stocks of different companies from a single sector (for example IT sector) or stocks of different companies from different sectors( for example IT, health, food, etc) or a mixture of stocks, bonds, other equities all in one.

It all depends upon the type of mutual fund.

So, if you have lack of resource, time and efforts to buy to stocks or bond of different to companies, instead, you can simply buy a mutual fund and rest your fund manager will do your investing process for you.

NAV( net asset value)

NAV is calculated for every mutual fund as it tells about how good or bad a mutual fund can be. It represents a fund per unit market value.

This is a price at which investors buy or sell fund units from fund company.

Formula: NAV= FUND ASSET – FUND LIABILTIES / NUMBER OF SHARES OUTSTANDING.

For more about NAV: click the link
https://www.investopedia.com/ask/answers/04/032604.asp

Why mutual funds?

why choose mutual fund over other

Types of mutual funds?

Mutual funds are classified into majarly two broad categories:

  • BY INVESTMENT OBJECTIVE
  • BY CONSTITUTION

Let us trow some light on each one of them

By investment objective

Types by company size

Large cap

These funds invest a major portion of their money in companies with a large market capitalization ( usually companies with turn over more than 10bn USD).

Stable and sustainable returns.

Less risk and returns.

Mid cap funds

They invest most of their money in companies with mid-size capitalization( mid-size companies)

Medium returns over a period of time.

Both medium risky and medium returns.

Small cap funds

These funds primarily focus on small companies, showing some growth but there is risk attached to it.

High returns

High risks

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By investment objective

Equity schemes

These schemes generally invest a majority of funds in equities (shares), hence, they are high-risk investments.

Suitable for long term.

Not suitable for the ones who want to become immediate rich.

Debt schemes

These schemes mostly invest in fixed income securities like bonds, government securities, etc.

Less risk, less returns.

They provide fixed regular income just like fixed deposit in banks.

These are suitable for short term as in long run equities schemes will outrun them. So I recommend this scheme, for retired individuals.

Balanced schemes

They usually invest both in equities and debts.

Medium risk and returns.

I recommend this scheme for the one who needs moderate returns without much risk.

Money market

These schemes invest in safe and short term instruments such as treasury bills, certificates of deposit, etc.

Moderate income an provide protection to your investment.

Tax saving schemes

These schemes provide tax benefits to investors. They are made in such a way thus by investing these schemes provide maximum tax benefits to investors.

They comes with specific time period and mainly invest in equities.

Index schemes

These mutual funds invest in shares which are represented on an index such as BSE, NSE index, etc.

Mostly companies represented on index are prominent, well know and stable.

There is not much fluctuations, so risk is less and returns are also good.

By constitution

Open ended schemes

These schemes do not have a fixed maturity period means you can buy or sell the units of these mutual funds anytime.

Close ended schemes

They have a fixed maturity period means you can sell or buy units of these schemes at a particular time of the year only.

Interval schemes

They are a combination of both open and close-ended schemes. You can buy or sell units of these mutual funds at predetermined intervals.

How do mutual funds work?

how mutual funds works

How much you can earn from mutual funds

It is only written to give you guys an idea on how much you will earn, if you invest over a particular period of time.

Let us assume we go for sip plan( means you are investing or putting a particular amount every month) in mutual fund and we invested 3 thousand indian rupee every month over a time span of 20 years .

sip calculation of mutual fund

Here are the results

Here, we expected return of 15%. It may vary.

SIP calculator :
https://sipcalculator.in/

Apps and websites

ET money

This investing app is my personal favorite. You can download it from both ios and android store. Its free of cost and set up process to open an investing account is quite easy and fast.

et money app for mutual fund

One thing that gives this platform edge over others is that you can very easily buy mutual funds of different companies under a single roof. So you don’t need to go to different companies website to buy their respective mutual funds.

You can buy from a variety of mutual funds according to your preferences whether it is a direct plan, tax saving fund or sips or lump sums. Moreover, detailed information is been provided about every mutual fund with a blend of beautiful and easy to digest infographics of past records and sectors they put money into, etc.

Visit now:
https://www.etmoney.com/

Paytm money

paytm money app for mutual fund

Is quite a good news for all of you who wants to buy mutual funds as paytm recently launched its mutual fund services. Account setup is very easy and fast with add on benefits like “no commission”, “safe and secure, ” transparent tracking”, “data privacy” and much more.

Visit now:
https://www.paytmmoney.com/

Money control

money control website

It is one of the most popular website related to investing. Here you can view detailed informations of various stocks, bonds, mutual funds, etc. The content provided here is detailed and categorized, so it’s easy to understand.

Visit now:
https://www.moneycontrol.com/

Things to look at before buying a mutual fund

things to look before buying mutual funds

MUTUAL FUNDS FOR 2019

Drawbacks

With flower comes the stones. Not everything about these schemes is perfect. There are some things you should give a thought before indulging yourself in these investment opportunities.

  • Mutual funds entirely depend on the market condition. so there is a fixed guarantee.
  • Fund companies or brokers charge investors for various services such as transaction charges, exit charges, annual charges, etc.
  • Mutual fund companies charge the investors no matter how bad a fund performs.
  • All the money collected after pooling is not invested in the market, some cash in hand is also there in companies

Conclusion

In the end, all we can say, start investing at an early age because investing works like compound interest, the earlier you start the wealthier you become. Every minute pass by is missed opportunity to gain wealth.

Hope you liked our article and inhaled some valuable information from this.

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About the author

abhijeet

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2 Comments

  • Abhijit, most people in India are still scared of investing in mutual funds as they think it is risky. It is nice to see this post you have shared helping people understand the best mutual funds and what they really are. It is sure to encourage people to invest in mutual funds when they have a clearer picture.

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