In this post, you will be educated regarding mutual funds. What is mutual funds? How to invest in it? Basically all the necessary information regarding it,
WHAT IS MUTUAL FUND? DEFINATION
Mutual funds is a special kind of investment through which you can invest on different types together. You can do a diversifies investment by investing at one place.
HOW TO INVEST?
Asst Management Company starts mutual funds. Basically you give your money to Asset Management Company and many people like you do so. That company invest all the money collectively at different places. They have appointed experts and with their suggestion they invest the money.
They invest money at different places and the return rate they get collectively from these different places
out of that some small percent of 1-2% is kept as a profit by the Asset company and the rest you get back as per that return rate.
HDFC, HSBC, ICICI, Aditya Birla, Reliance, TATA, these are the few examples of companies and banks who have started their own assest managemnet company.
All the companies starts different kinds of mutual funds in large numbers. For example ICICI has started more than 1200 mutual funds.
So how risky is your mutual funds and what is the return depends on the mutual funds that you are investing in.
Mutual funds can give the return rate of 4% and also of more than 30% too.
It can be of zero risk and also of high risk to. Because all this depends on where the asset management company is investing your money.
If that company is investing on stocks then it will be more risky and you will get more returns and if it’s investing in the government bonds then it will be less risky.
TYPES OF MUTUAL FUND
Different types of Mutual funds depends on the basis of the investment done by AMC people.
You can divide this in the 3 categories: Equity mutual funds, Debt Mutual Funds and Hybrid Mutual funds .
1) Equity Mutual Funds(Stock Market)
In Equity Mutual Funds, your money will be invested in the stock market. So naturally in this type of Mutual funds generally the risk is more and also the return.
1.1 )LARGE/SMALL/MID CAP EQUITY FUND
In the stock market on which kind of company are you investing, if it’s a big company then it’s called as Large Cap Equity Funds . If it’s a small company then it’s called as Small cap and in the same way Mid Cap equity Funds.
Big company doesn’t have much risk as compared to the smaller ones but big companies won’t have growth rate as high as it can be for the smaller companies. So risk and return both are less in the big companies.
1.2)DIVERSIFIED EQUITY FUND
Next type is Diversifies equity funds .Here the investment is done in the large, medium and small cap or it’s done in different companies.
1.3)EQUITY LINKED SAVING SCHEME(ELSS)
Next type is Equity Linked Saving scheme that is ELSS, this is a special type of Equity fund where you can save our tax. You can save the tax on it’s profit.
The fund manager purposely invest on such places where there’s high return and also has high risk.
IDFC Tax advantage is an example of an ELSS funds with the expected returns of 11.3% within a year.
1.4)SECTOR MUTUAL FUNDS
Next type is Sector Mutual Funds, here specifically such companies are invested on which belongs to a big sector like Agriculture sector All the companies which are under the agriculture sector, they are invested on.
A logistic or transport sector, so there. One example for this is UTI transportation and logistics funds.
So the investment is done in that sector.
These funds are more risky, since all the investment is done in one sector so if the sector is going down everything depends on that.
The last type of equity fund that I would want to tell you is Index fund. Index Funds are passively Managed funds that is no agent of AMC is looking at where to invest the money here . These are passively managed that is according to the market’s rate’s up and downs they too go up and down. Looking at the price of Sensex and Nifty it varies.
2) Debt Mutual Funds.
Now let’s look at the second category of the mutual funds , that is Debt Mutual Funds.
These are those mutual funds which are invested on the debt instruments. Debts instruments are bonds, debenture, certificates of deposits now these things are exactly what you can read it for yourselves
Sometime if the Government needs money and it’s not getting that through the budget then the government borrows money from the people and take loans from the people. It is called as bonds
You can invest here, give to the government and the government will return you the money after a fixed interest.
Liquid funds are those mutual funds which can be easily and quickly converted in to cash. Liquid means that actually, It’s not the liquid to drink. In economics liquid is something which can be easily converted into cash. So this thing can be converted into cash within a day or two. It has a very low risk, such low that you can basically consider this as an alternative to savings account.
Assest liquid fund is one such example where you will get the return of 7.1% in a year
Next type is Gilt Funds, these are those funds where Investments are done on the Government issued bonds.
So technically it has zero risk because it’s never possible for the Government to not return your money.
Mostly the interest rate can fluctuate.
2.3)FIXED MATURITY PLAN
Next type is Fixed Maturity plans and this can be considered as an alternative to Fixed deposits, FD because it has very low risk just like FD and it is done for a fixed time. For a specific time investment is done here and you can’t take the money before that.
So these are the few main types of Debt funds there are more like Junk Bond scheme. https://grow.org.in/#!/drfhome
3)HYBRID MUTUAL FUND
The third category of mutual funds is Hybrid Mutual Funds ,basically its a mixture of a debt and equity mutual funds. Some people wants to invest in the stock market but don’t want to invest all the money there and also invest some amount in the Debt instruments., so hybrid mutual funds are for them.
PROS AND CONS OF MUTUAL FUNDS
The biggest advantage of mutual funds in comparison to other investment is that it is already diversified.
Your risk gets very low due to diversification. Because you are not investing at one place so if one thing crashes so it won’t affect your money. So in comparison to the stock market, gold, real estate, mutual funds are less risky however the exact risk depends on the mutual fund that you are investing on.https://www.perfectentrepreneur.com/how-to-start-a-business/
One more good advantage is that it is affordable, you don’t have to invest a big amount altogether.You can use SIP and invest a small amount every month.And all the investment of the mutual funds, is done by a professional expert or a fund manager who decided where to invest and where to not. This you don’t need to so it’s again a big advantage that an expert is working for you.
Mutual funds has a disadvantage too. If you are giving it to an unknown person, you don’t know how its going to perform. However he is an expert but you can’t trust 100% that an expert will be right all the time.
The biggest disadvantage that used to be for the mutual funds earlier is that the agents used to take a lot of commissions for investing in the mutual funds. They say that give us the money we will invest for you in the mutual funds and deduct a lot of commissions for themselves.
So ,here is all about what is mutual fund ,how to invest ,types of mutual funds and pros and cons of it.For more knowledge go to this website https://www.perfectentrepreneur.com