If you want to know what a mutual fund is, how many types there are, how to invest in a mutual fund, and what the advantages and disadvantages of a mutual fund are, then you have come to the right article.
Mutual funds are an excellent and easy way to earn money. Anyone can invest in mutual funds; you can invest in them at a rate of just Rs 500 per month.
Although mutual fund investment is also risky because it is affected by the ups and downs of the stock market, investing in mutual funds is a little less risky than investing directly in the stock market. In mutual funds the investors’ money is invested in different shares, if there is a loss in one share, the other share compensates for it, it can be said that investment in mutual funds is less risky than stock market investment.
Today we will provide you with all this information through this article, so that you get correct information about what a mutual fund is and it becomes easy for you to invest. For complete information about a mutual fund, read the article till the end.
What is a mutual fund?
A mutual fund is an investment in which the money of many investors is deposited at one place in the fund house. These funds are managed by AMC, i.e., Asset Management Company.
In simple words, a mutual fund is a fund of money given by many investors, where professional managers, i.e., fund managers, manage this money. The fund manager invests the fund in a safe manner little by little in different places, like bonds, the stock market, and other financial assets, so that the investor can get the maximum benefit from his money.
Investors are provided some units for their money, which we call NAV, i.e., net asset value. We hope that you will understand what a mutual fund is.
Definition of Mutual Fund
A mutual fund is a fund of money given by many investors, where professional managers, i.e., fund managers, manage this money. The fund manager invests the fund in a safe manner little by little in different places, like bonds, the stock market, and other financial assets, so that the investor can get the maximum benefit from his money.
Role of SEBI in mutual funds?
Mutual funds are registered under SEBI, which regulates the stock market in India. SEBI is responsible for keeping the investors’ money safe, and it ensures that no company registered in the stock market is cheating the people. Is.
Types of Mutual Funds
Mutual funds can be mainly divided into two categories:
First, based on asset class
- Debt Funds : The fund invests in bonds and other debt securities, such as fixed-income Treasury bills, corporate bonds, government securities, etc., and provides regular structured income to investors. If any investor wants less risk because they are less affected by the fluctuations in the stock market, then this is a good option for him.
- Liquid mutual funds : Investments in such funds are made for a very short period of time because the money remains liquid in them. A liquid fund is also called a money market fund. This is the best fund for investors who have a risk appetite.
- Equity Funds : This fund invests in the stock market and buys and sells them. Most commonly, investors invest in equities, i.e., shares of companies whose basic objective is wealth creation or capital appreciation. This is the most common and high-risk category of funds, which is divided into large, mid, and small-cap sub-categories. Large-cap money funds that invest in large-sized companies. Mid-cap money funds invest in medium-sized companies. Small-cap funds invest in small-sized companies.
- Hybrid Funds : It contains a mix of equity and debt funds, through which investments can be made without risk. These offer the best growth prospects as well as income generation.
Second, based on the structure
- Open-Ended Mutual Fund : Open-ended funds allow investors to trade in and out of the fund at their convenience. Simply put, investors in such funds can deposit and withdraw money at any time.
- Close-Ended Mutual Fund : In closed-ended funds, the maturity period of the scheme is fixed. Investments can be withdrawn only at the time of maturity.
- Interval Funds : These are open for investment only for a fixed period. Typically, investors need to stay for at least 2 years.
Apart from these funds, there are many other types of funds, but the ones above are the main and most used.
How to invest in mutual funds
To invest in mutual funds, you can invest in the following ways:
- Visit the official website of the mutual fund and complete the KYC process.
- After completing the KYC process, you can invest in mutual funds offline or online. If you feel uncomfortable doing online transactions, you can invest in the fund by visiting the nearest branch.
- Apart from this, you can also invest in your favorite mutual funds through trading applications like Groww, Upstox, and Zerodha.
Mutual Funds: Ways to Buy
You can invest in mutual funds through a direct plan or a regular plan.
Direct Plan –
- Now you do not need a distributor or agent to buy mutual funds. If you know which fund to buy, you can do your own research, and then you can buy the fund yourself by visiting the AMC website. In a direct plan, since there is no agent between the investor and the fund house, you do not have to pay the commission given to the agent. In this way, the remaining commission goes into your investment, which means you are likely to get higher returns on your investment.
Regular Plan –
- When you invest in a mutual fund through an intermediary like a distributor, you invest in the regular plan of the scheme.
Ways to Invest
There are two ways to invest in mutual funds: one in which you can invest lump sums, and the other is an SIP (systematic investment plan), in which you have to invest regularly and monthly.
- SIP : Through a SIP (systematic investment plan), you invest a fixed amount monthly for a fixed time interval.
- Lump Sum : In lump sum, you invest a lump sum amount in a mutual fund for a fixed common interval. And after the period ends, you get the profit.
Advantages of Mutual Funds
List of Benefits of investing in mutual funds:
- Diversification: Investors get the opportunity to invest in different assets to protect themselves from inevitable risks.
- Professional Management: The money you invest is managed by professional fund managers, providing greater expertise and returns to investors.
- Variety: There is something for every investor in mutual funds, from safe funds for those who want safe investments to high-return funds for those who want high returns. Attractive Investment: Investing in mutual funds is attractive for both small and big investors.
Disadvantages of Mutual Funds
There can also be disadvantages to mutual fund investments:
- Investment windfall: Buyers of mutual funds do not have complete control over the investments they sometimes sell.
- Investment charges: Some mutual funds may charge fees for investing, which may reduce investors’ profits. There is no guarantee of return in mutual funds; just as there are ups and downs in the stock market, similarly, there are ups and downs in mutual funds too.
