What is Mutual Funds? What are the benefits of investing in Mutual Funds?

Overview

              Plenty of people think the mutual fund investment is very complicated. But we are blogesto simplify it for you from very basic level. Let’s start

             A mutual fund is an investment vehicle where many investors pool their money to earn returns on their capital over a period. The fund is managed by a professional fund manager. A fund manager, who is finance professional, manages the pooled investment.

                The fund manager purchases securities such as stocks, gold and bonds that are in line with the investment mandate. In simple we can say that mutual fund is like a huge basket with shares from several companies.

Types of Mutual Funds

1) Equity Funds

2) Debt Mutual Funds

3) Hybrid Mutual Funds

1) Equity Funds

              As from the name we can under that this type of mostly invest in equity shares of companies across all market capitalizations. Equity funds have the potential to offer the highest returns among all classes of mutual funds.

2) Debt Mutual Funds

             The Debt Mutual Funds invest mostly in debt, money market and other fixed-income instruments such as treasury bills, government bonds, certificates of deposit, and other high-rated securities. Debt funds are ideal for risk-averse investors as the performance of debt funds is not influenced much by the market fluctuations.

3) Hybrid Mutual Funds

             In the Hybrid Mutual Funds the fund manager invest funds in both Equity and Debt Mutual Funds. The main objective of this type of funds is to balance the risk ratio by diversifying the portfolio.

Benefits of investing in Mutual Funds

1) Indirect Investment

            With Mutual Funds your money is invested indirectly in financial markets where Fund managers manage your investments and they invest the amount in stocks, gold and bonds etc.

2) Investment Handled by Experts

           Here, a professional fund manager takes care of your investments and strives hard to provide reasonable returns. And just as you would pay the driver for his chauffeuring services, you have to pay specific fees for the professional management of your mutual fund investments.

3) SIP (Systematic Investment Plan)

            The most significant advantage of investing in mutual funds is that you can invest a small amount regularly via a SIP (systematic investment plan). The frequency of your SIP can be monthly, quarterly, or bi-annually, as per your comfort.

4) No Time Bound

              Most mutual funds are open-ended, and they come with varying exit loads on redemption. But some investments allow premature withdrawals within the time period in exchange for a penalty.

5) Low Cost

               In the mutual funds you can start investment with your lowest cost. Mutual fund houses or asset management companies (AMCs) levy a small amount referred to as the expense ratio on investors to manage their investments.

6) Diversification

              Mutual funds invest across asset classes and shares of several companies, thereby providing you with the benefit of diversification. Also, this reduces the concentration risk to a great extent.

7) Low Risk

            With Mutual Funds investment the Risk to lose your money is very low as compare to Stock Market and Money Market. Because professional fund manager takes care of your investments

8) Liquidity

            The Mutual fund provides investors with a high degree of liquidity. This makes it easier for the investor to fall back on their mutual fund investment at times of financial crisis.

9) Regulated

               All mutual fund houses and mutual fund plans are always under the purview of the Securities and Exchange Board. Apart from that, the Association of Mutual Funds a self regulatory body formed by all fund houses in the country, also governs fund plans.

10) No Need to Time Markets

              Like the stock market in mutual funds there is no need of Market Time. This is because the cost averaging phenomenon ensures that your cost of purchase of fund units is on the lower side.

Conclusion

              Investing in mutual funds is one of the simplest ways to achieve your financial goals on time. But before you invest, take an adequate amount of time to go through the different fund options. If required, you can approach a financial advisor to help you make the right investment decisions and plan your financial journey.