Mutual Funds- The first step into investing!

We all have heard about them but do we understand them? Do we know how they help to grow your money & why should you invest in them?

Do you know what happens to your money, once deposited and what have been the trend?

In this article, we will talk all about the if’s and but’s of Mutual Funds and help you understand it completely in a common man language.

Mutual Funds: These are a pool of money from a large number of investors from different spheres of life. These are the people who invest in different asset classes i.e. (Debt funds,stocks, Government bonds), based on a common objective to ‘Multiply their money’ for various purposes.

The money collected from all these people is managed by a Mutual Fund company also known as Asset Management Company(AMC)

In simple terms, It’s like people pooling in their money and lend services of the Fund manager, to take right decisions, based on his expertise or let’s take an example from our daily lives.

When we want to buy a new Car, we reach out to someone elder in our house, friend who has got a good experience of driving cars or whom we believe will provide us a good advice. Similarly, when we want to buy/rent a house - we go to a broker as they are experts in the field and for a small charge they can provide us the best advice to speed up our process.

Similarly, we can invest our money on our own though Mutual Fund Companies. main job is to find the best opportunities therefore “If you don’t have time or you don’t understand the various instruments then Mutual Fund is the way to go”.

Therefore, Mutual Fund is not a product like Fixed Deposits, Bonds, Stocks etc. It is a medium, which allows one to invest in a basket of products, hence the factors like return, risk etc will depend on the composition of the basket.

Do checkout this video, which explains it in a more visual manner -

Benefits of mutual Funds :

[if !supportLists]1. [endif]Small investments: With mutual fund investments, there is no fixed amount which you have to invest i.e. you can invest based on your capability at that moment.

[if !supportLists]2. [endif]Professionally managed: The pool of money collected by a mutual fund is managed by professionals who possess considerable expertise, resources and experience.

[if !supportLists]3. [endif]Spreading risk: A mutual fund usually spreads the money in companies across a wide spectrum of industries. This diversifies the risk.

[if !supportLists]4. [endif]Transparency: Mutual funds clearly present their investment strategy to their investors and regularly provide them with information on the value of their investments and portfolio composition.

[if !supportLists]5. [endif]Liquidity : Money can be withdrawn partially or fully, anytime. Not like FD, where you are required to break it in full even to redeem a fraction amount.

[if !supportLists]6. [endif]Taxation : Equity Funds are tax free if held for 1 year. Debt funds are taxed, but after adjusting inflation(if held for 3 years), so actual tax is quite less.

And they are taxed only at withdrawal, unlike FDs where banks deduct TDS on accrued interest each year.

[if !supportLists]7. [endif]Invest in inaccessible government/institutional options: There are various schemes of Government bonds and International stocks, bonds etc whose ticket size is very big and a normal individual investor cannot invest into those schemes.[if gte vml 1]><o:wrapblock><v:shapetype id="_x0000_t75" coordsize="21600,21600" o:spt="75" o:preferrelative="t" path="m@4@5l@4@11@9@11@9@5xe" filled="f" stroked="f"> <v:stroke joinstyle="miter"></v:stroke> <v:formulas> <v:f eqn="if lineDrawn pixelLineWidth 0"></v:f> <v:f eqn="sum @0 1 0"></v:f> <v:f eqn="sum 0 0 @1"></v:f> <v:f eqn="prod @2 1 2"></v:f> <v:f eqn="prod @3 21600 pixelWidth"></v:f> <v:f eqn="prod @3 21600 pixelHeight"></v:f> <v:f eqn="sum @0 0 1"></v:f> <v:f eqn="prod @6 1 2"></v:f> <v:f eqn="prod @7 21600 pixelWidth"></v:f> <v:f eqn="sum @8 21600 0"></v:f> <v:f eqn="prod @7 21600 pixelHeight"></v:f> <v:f eqn="sum @10 21600 0"></v:f> </v:formulas> <v:path o:extrusionok="f" gradientshapeok="t" o:connecttype="rect"></v:path> <o:lock v:ext="edit" aspectratio="t"></o:lock> </v:shapetype><v:shape id="image9.jpg" o:spid="_x0000_s1026" type="#_x0000_t75" alt="perception.jpg" style='position:absolute;left:0;text-align:left; margin-left:-7.5pt;margin-top:66pt;width:384.4pt;height:289.85pt;z-index:1; visibility:visible;mso-wrap-style:square;mso-wrap-distance-left:9pt; mso-wrap-distance-top:9pt;mso-wrap-distance-right:9pt; mso-wrap-distance-bottom:9pt;mso-position-horizontal:absolute; mso-position-horizontal-relative:margin;mso-position-vertical:absolute; mso-position-vertical-relative:text'> <v:imagedata src="file:///C:\Users\SANYAM\AppData\Local\Temp\msohtmlclip1\01\clip_image001.jpg" o:title="perception"></v:imagedata> <w:wrap type="topAndBottom" anchorx="margin"></w:wrap> </v:shape><![endif][if !vml][endif][if gte vml 1]></o:wrapblock><![endif]

Misconceptions Associated with Mutual Funds:

We hope you have now understood ‘What is a Mutual Fund’, it’s advantages and what are the few of the misconceptions associated with them.

In our next article - We talk about ‘Who should invest in Mutual Funds’ and what to look while investing in Mutual Funds - https://www.niveshgyaan.in/single-post/2017/10/05/Mutual-Fund-is-for-everyone