Mutual Fund Basics

Mutual Fund Guide

• A mutual fund is a great investment opportunity. Money is pooled together from a number of small time investors, and then professionally invested in a number of bonds and stocks. There are different kinds of mutual funds available, and you can choose the ones that best suit your financial goals, and how much you are willing to risk your money. While several companies offer mutual funds in India, most people are still unclear on what these funds actually are.

What Is a Mutual Fund?

• In order to understand the wonderful world of mutual fund investments, let’s start by understanding, in very simple terms, what a mutual fund is. A mutual fund is a sort of middle ground mediator that brings together a group of people, and then invests their money in securities, bonds and stocks. Depending on the amount of money each investor puts in, they hold a certain portion of the fund. It is one of the best investment options for middle-class people as they get a professional to manage their investment.

Benefits of a Mutual Fund

• Choice: The number one benefit of investing in mutual funds is that there are a variety of options available. Numerous financial companies offer mutual fund investments to the public at competitive rates with great returns, so people can pick and choose the company that works best for them and their financial goals.

• Professional Management: Many middle-class people do not understand how investments work, or how the market works. For these people, a mutual fund is an absolute blessing, as professionals manage the money. The professional analyse the market and the economy before they decide they best place to invest your money.

Cont…

• Small Investments: While there are a number of investment opportunities available, there are also a number of scam artists, trying to take your money away from you. People are worried about how much money they should put into a mutual fund investment, as there is always a risk of losing instead of gaining. In a mutual fund, you can make a small investment. You don’t need to invest all your money, so at the end of the day, even if the investment doesn’t give you great returns, you don’t feel cheated.

• Transparency: Mutual fund companies have to share a clear investment plan with their investors. This provides absolute transparency, and the investor is always aware of where and how his money is being invested. All mutual funds are also registered with SEBI, and they have to function within SEBI’s strict parameters. These parameters ensure that the investors’ money is not being misused.

Safety of Mutual Funds

• Diversity: Mutual funds are a safe investment option as they provide diversity. The risk is spread across investors, and a large number of assets are invested in. This way, even if one asset underperforms, they others are there to average out the losses.

• Economies of Scale: Transaction costs are lower when dealing with mutual funds, as a large amount of securities are bought or sold together.

• Liquidity: With mutual funds, investors always have the option of liquidating their holdings if they need their money urgently, or if they are not happy with the investment.

Conclusion

• Now that you’re clear on mutual fund basics, you can go ahead and look for a good investment opportunity that serves your financial goals and needs.

Thank You…