A mutual fund is an investment pool that is made up of small and medium investors. It is intended to invest the money in shares, stocks and bonds of the company. Many small and medium investors are able to pool their money and give it to Mutual Fund Company. The mutual fund manager or investor will then make an investment on our behalf.
Why mutual fund are so beneficial
Three main reasons mutual funds are advantageous are:
- This helps us to minimize our risk. Consider this: Small investors and you have very little money each month that can be used for investment purposes. It is hard to reduce the risk of stock market volatility when the money we have is limited in our individual capacities. When you and other small investors pool your money, it becomes a large enough fund for someone with professional knowledge to make multiple investments. The risk is reduced when the fund is invested in many different sources. Because a fund can be invested in many different places, you can save money in other places in the event that one of them fails.
- Technical Knowledge is required to invest in stock markets. It is not possible for everyone to have the technical knowledge required to invest in stock markets. The world of investing is complex and often very technical. The benefit with a mutual fund is all we have to do is take our money and give it to somebody who is known as the investment manager (https://www.vedantasset.com/static/why-vedant.aspx). The manager of mutual funds are people who come with years of experience and are professional investors. With a small commission, or zero commission for direct mutual funds, all we need to do is give our money to someone and forget about all the hassles that come with investing our money.
- Mutual funds can be very safe. Mutual funds in India are tightly regulated by the Securities and Exchange Board of India (savy). You can rest assured that they won’t steal your money.
Types and Benefits of Mutual Funds
There are three types mutual funds depending on the risk involved.
- These high-risk mutual funds** are high-return and high-return. However, they also have high volatility and risk. These funds invest in shares of small-cap businesses or companies that could be subject to market risk. The situation can turn either way. If the situation is positive, the company does well and we, as the initial investors, get many benefits. In the worst case, we lose the money we invested if the situation turns negative. These mutual funds are best suited for young people with a higher risk tolerance.
- Funds that invest in mid-cap stocks or debt instruments. These funds offer a moderate return of around 10-14% while assuming a relatively low risk. Debt instruments are generally more secure than other investments. These funds are suitable for beginners in mutual fund investing or anyone who is just looking for a taste of water.
**3. **3. These funds are considered safe, but they can offer as much as 8-10% annual interest. These funds can be a great option for seniors or anyone who is very cautious.
How can we invest in Mutual Funds **
Mutual Funds allow you to invest at your discretion. You can choose how much money you wish to invest. You can invest in mutual funds in two ways.
- Lump Sum Investment: **The Lump Sum Investment is where you take a set amount of money and invest it all in one transaction. These investments are known as Lumpsum Investment and are very beneficial for seniors and people with a lot of money.
- **Systematic Investment Plans (SIP): **In SIP, you don’t have to invest a large amount of money at once. Instead, you should commit to investing a small amount each month for a set number of years. You can choose to invest as little as Rs 100, Rs 500 or Rs 1000. It doesn’t matter what your needs are.