All you need to know about mutual funds

What are mutual funds?

Any individual who wishes to start investing in mutual funds should firstly understand the basics of mutual funds. A fund manager is someone who manages the pool of money which is collected from different investors and they invest the money into different investment options like company stocks, bonds and shares. Mutual funds in India are regulated by the Securities and Exchange board of India (SEBI) and the investing in mutual funds is considered one of the most easy and efficient ways of increasing wealth.

After an investor has updated themselves with mutual funds basics, they will be able to make the decisions related to mutual funds on their own. Mutual funds in India are classified into different categories based on certain different characteristics like an asset class, structure, investment objectives and risk. A mutual fund is a financial vehicle which is made up of a pool of money which is collected from different investors to invest in securities like stocks, bonds, money market instruments and other assets. In a mutual fund, the funds are gathered from different investors with the sole purpose of investing in different securities. A mutual fund’s portfolio is structured and maintained for matching the investment objectives which are stated in the prospectus.

A mutual fund will give small or individual investors an access to professionally managed portfolios like equities, bonds and other securities. The basics of mutual funds include gathering funds from different investors and using that money for buying securities like stocks and bonds. The value of a mutual fund will depend on the performance of the securities it decides to buy. So, when an investor decides to buy a unit or share of a mutual fund, they are buying the performance of the portfolio or more precisely, a part of the portfolio’s value. It is advised that an investor compare mutual funds, before deciding the mutual fund they want to invest in.

Investors can accumulate a significant amount of wealth through investment in a diversified portfolio which comprises a lot of high-performing schemes. However, there are a lot of funds houses and schemes to choose from which can be overwhelming, if an investor has minimal knowledge about the basics of mutual funds. A professional fund manager can be beneficial for ensuring that the funds are invested will result in maximum returns.

Mutual funds are a smart, practical and strategic investment instrument. They are professionally managed by qualified and experienced fund managers. The risk mitigation through investments are done in a diverse portfolio of securities. They are more liquid than other investment options in deposits, shares and bonds. Mutual funds involve relatively low expenses and fees regardless of a fund’s performance. They are known for the consistency in their performance. Mutual funds are highly flexible in terms of the financial objectives, liquidity and tenures. There are ample choices of investment catering to the different needs of an investor. Mutual funds offer ease of trading and transaction of the units on all the working days.

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