You’ve probably heard of mutual funds. They’re big business; in 2016, investors poured over $2 trillion into them.
Over the last several years, mutual funds have grown in popularity in the Indian economy, especially among investors, especially for those looking for a low-risk strategy for higher returns.
You’re probably also interested in what they do, so in this blog, we will try to explain to you what is mutual fund? How does it work? How is it different from shares?
Apart from that, we will also cover the advantage and disadvantages of mutual in detail. So that you have a clear picture regarding the mutual funds.
So without wasting your time let’s dive into the topics
What are mutual funds?
Funds, short for “managed mutual funds,” are investment products that are invested in stocks, bonds, or other types of assets. The fund managers (who have expertise in investing) choose which assets to buy and sell, and how much to pay for those investments.
The Fund manager are the ultimate investor in the fund since they share in the returns and risks. Because they are the owner of the fund, they have the right to sell the fund at any time
This doesn’t imply that they will take your money run out. They basically use your money and invest in the stocks and buy & sell it according to their research to gain maximum profit. This profit is mutually shared with the investor who invests in their mutual funds.
Who can invest in mutual funds?
Anyone can invest in mutual funds. You don’t need to buy an individual account with your own money. But you do need a few things: a bank account or credit union account.
After that, you need to create your account in mutual funds with the required document that is mentioned. After this, you are all ready to invest in mutual funds.
If you’re a newbie investor and have just started saving for your future then it is always advisable to start small and invest.
You just need to select the correct mutual funds which provide a good return from the last 1-2 years. Also, check the number of shares that are held by the fund and other information of the fund before making a purchase.
The amounts of money that you invest in a financial year are called systematic investment plans (SIPs).
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While considering mutual funds, make sure you select a scheme in the amount range that you can easily manage. If you invest an amount of say Rs10,000 and you can invest that amount in your SIP every month then it is ideal for you.
In the beginning, you will be tempted to invest more money because you’re young and are hungry for returns. However, it is always better to stick to SIPs and avoid investing in any liquid schemes.
Mutual funds vs Share Market
Mutual funds and share market works in a different approach. This difference adds to the possibility of identifying a more suitable model for managing your investment.
Mutual funds are made up of money managed by several institutional and institutional organizations under them, which aim to provide investors with an adequate return by asset selection.
On other hand in the stock market, you need to pay attention to market fluctuations. For that, you need to be tuned to all the news that comes in from various media channels. Once you are aware of market scenarios, the second important thing to keep in mind is your portfolio.
In simple words we can say that buying shares in the share market, you should consider how they perform, which are the basic indicators of the share price. While staying committed to the mutual fund, you have to be realistic about the expected returns.
But in the share market like getting a dividend is better than in a mutual fund because, in the share market, you get the additional earnings as a reward and buy back your investment at a predetermined price or advance of investment.
Also in the share market, if anyone share prices increase rapidly in which you have done investment at that time you will get much better returns. While in mutual funds the profit you gain is almost fixed.
So in this manner mutual funds and the stock market are different.
Advantages of mutual funds
Here’s a list of advantages of investing in mutual funds:
- The most obvious benefit of investing in mutual funds is consistency in the returns. Since mutual funds are managed by professional fund managers, they tend to invest in quality stocks, which in turn ensure steady returns.
- Mutual funds ensure that your money is diversified. Having a dedicated investment portfolio will help you achieve your goals faster and efficiently.
- You will receive regular income regularly. Also, while investing in mutual funds you will not have to worry about capital gains tax.
- For those who are investing for the long term, a good mutual fund can help you achieve your goals faster.
- A good mutual fund portfolio will ensure that your financial goals are met more efficiently.
- You will also receive advice from your fund manager.
- An asset allocation of the right mix of schemes can help you achieve your goals faster.
- Investing in mutual funds is simpler than managing your finances.
Disadvantages of Mutual Funds
The disadvantage of mutual funds is that the stock hold by mutual funds is sold in the absence of any information offered to the investor. The fund’s manager does not offer any exact information about the total asset they hold.
There is no provision for a trade history indicating the asset value of the fund. The funds also fail to offer an explanation of risks, charges or rebates
Generally, this is why investors are always left in the dark they don’t know about the risk that the fund’s manager is taking.
Conclusion
Finally, I’d like to point out that mutual funds are an excellent choice for new investors because they offer high returns with little risk.
In this article, I had try to explain everything about mutual funds. I had covered every point that you need to keep in your mind before investing in mutual funds.
I hope you understand this thing really well. Best of luck with your future investment.
