February 4, 2023

 What is Mutual Fund? How to invest?

You must have often heard the name of ‘Mutual Fund’ while talking to people on TV. You must have this question in your mind, what is this mutual fund? Let us know in today’s topic that what is Mutual Fund? Types of Mutual Funds Are Mutual Funds Right for Investment? How to invest in Mutual Fund?

Many people think that mutual funds can invest only in the stock market, but it is not so, you can invest in many different places from mutual funds.

What is Mutual Fund? How to invest?t us see (What is Mutual Fund).

What is Mutual Fund?

Suppose you want to go somewhere far away, then what do you need? You need a car and you have to know the way you want to go and most importantly you should know car driving.
The same you go with your friends and at the same time there is also a skilled driver to drive the car. Who knows the way So you do not even need to drive a car, even if you do not know the way, it will run and the cost of the car will also be less per person.
A mutual fund is a type of financial vehicle that is made up of money collected from several investors with similar objectives and through which it is invested in securities such as stocks, bonds, gold, and other assets. Mutual funds are created by Asset Management Company (AMC).
In simple language, you give your money to AMC and AMC collects money from many people like you. So that company invests all this money in different places by taking the opinion of its expert (Professional Fund Manager).
AMC company keeps some small part (1 – 3%) of the collective income from the money invested all over the place. And you get the rest of the money. The small part that AMC keeps according to that return rate is also known as Expense Ratio.

What is NAV in Mutual Fund?

NAV i.e. Net asset value This is the unit of the mutual fund.
Like the stock price in respect of a stock, similarly the price of a unit in the context of a mutual fund is its NAV.
means whatever mutual you are. When you buy or sell a fund, you buy or sell it at the price of NAV. The price of NAV changes every day.

A) Types of Mutual Funds on the basis of Asset

1) Equity Mutual Fund

Equity Mutual Funds mean those funds that invest in the stock market. To understand this type well, you have to understand share market basic. For this my Share Market Basics can read this article.
There are also some types of equity mutual funds, such as
1) Large cap fund
2) Mid cap Fund
3) Small cap fund
4) Sector Fund
5) Diversified equity fund
6) Dividend yield schemes
8)Thematic Fund

2) Debt Mutual Fund

Government or company keeps on borrowing money through Debt instrument and returns it with interest. Funds which invest in Debentures, Bonds, Certificate of Deposite are called Debt Mutual Funds. Investing in these funds is less risky than equity funds and the return is also low.

Debt mutual funds are also of some other types such as,

Junk Bond Schemes
Fixed Maturity Plans
Liquid Schemes

3) Hybrid mutual Fund

Hybrid Mutual Funds are those funds that invest in both equity and debt as well. We have seen that equity MF has higher returns and higher risk. And in debt MF the risk is low and the returns are also low. Hence, there is always a good balance between returns and risk in Hybrid Mutual Funds.

There are also some types of Hybrid Mutual Funds such as

Monthly Income plan
Balanced Fund
Arbitrage Fund

B) Types of Mutual Funds on the basis of Structure

Whatever mutual funds you invest in, they are either open ended mutual funds or closed ended mutual funds.

1) Open ended Mutual Funds

In this type of mutual funds, investors can buy or sell units of mutual funds at any time. Due to the high liquidity in this type, this type of mutual funds are more liked by the people. Due to this, most of the mutual funds are open ended.

2) Close ended Mutual Funds

Investors can buy or sell this type of Mutual Funds only within a specific time period i.e. when there is NFO (New Fund Offer) of that offer and can invest in it and anytime after investing the scheme of that mutual fund. You cannot sell the units of the scheme.
To sell the units, you have to wait till the maturity of that scheme. Due to low liquidity of this scheme, it is not so easy to sell in the market and hence it is less popular among the people.

Advantages and disadvantages of Mutual Fund 

Benefits of Mutual fund

There are many benefits of mutual funds, some of which are given below.

1) Minimal investment requirement

Investing in Mutual Funds does not require a huge amount, you can start with a small amount.

2) Professional Management

As we have seen that market money is invested in mutual funds only through experts. Due to this, investors do not need much understanding of the market.

3) Diversification

The advantage of having a mix of investments and assets in a portfolio is to reduce risk.

4) Tax Benefits

Investments made in Tax Saver Mutual Funds are exempted from tax under section 80C.

5) Investments in Mutual Funds can also be made in Lum Sum or instalments.

6) Liquidity

Mutual funds which are not in lockin periods can offer liquidity as and when required. Meaning, if needed, you can withdraw money from the schemes.

7) Diversity and Freedom of Choice

Investor can invest in low, medium and high risk mutual funds according to his risk level.

8) SIP (Systematic Investment Plan)

Investment To do this, SIP (Systematic Investment Plan) can be done, in which some amount is paid every month from your bank account towards mutual funds.

Disadvantages of Mutual Fund Investing

Fluctuating Returns
The reason for the disadvantage of investing in Mutual Funds is that it carries more of the risk than Fixed Deposits (FD). We have seen that mutual funds invest in the market, due to which the growth of mutual funds depends on the performance of the market.

How to invest in mutual fund

You must have selected any one type of mutual fund keeping in mind the risk and returns. So now let us see how we can finally invest in MF?

You can start investing in mutual funds even with Rs.500 You can invest in MFs both online and offline.

There is a website and APP somewhere in the market, with the help of which you can easily do mutual fund investment and can also track how your mutual fund is performing. Below are the names of apps for some good mutual fund investments, you can start investing by signing up in them.

Groww App
Zerodha Coin
myCAMS Mutual Fund App
ETMONEY Mutual Fund App
PayTM Money Mutual Funds App

That’s all in today’s post. I hope you have got all the basic information of Mutual Funds through this article. Friends, you will definitely tell by commenting how you liked this post, and also share it to all your friends on Facebook, Whatsapp.

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