Mutual Funds & Uses
A mutual fund is a collective pool of investments from a dozen of people to be allocated in the best possible way. A mutual fund is formed with the money taken from a certain number of people and invested on their behalf, charging a bit of their legible fees. Management of the money invested is the greatest challenge. The speculation around mutual funds can help the investors to earn hefty amounts. Also individuals generally have little knowledge about this and do not know which scheme will best suit them and what their exact financial objectives are.
Mutual funds can be named as an up lifter for investment in stocks and instruments. Of course, mutual funds cannot be used as the replacement for investment documents, instead it puts together the collaborated money of different investors in stocks, debt bonds, money market instruments and other securities.
Each mutual fund has been created with a specific goal. The objectives can be found in the fund’s prospectus which is supposedly the legal document for A-Z information about the chosen mutual fund. Details like its definition, description, history and performance.
How does one invest in mutual funds in India?
There are 2 ways to invest in a mutual fund. One is to directly put your money into the mutual fund and second is to take services of a mutual fund expert. If you’re directly pooling money, you will lend your hands directly into the mutual fund scheme but if you approach through a mutual fund planner, then you invest in the regular scheme of things.
To invest directly, one needs to directly apply on the given websites or the authorized branches in the city carrying the required documents. The merit of directly investing money is that it saves you from the trouble of dealing with an external parties and the commission which in turn can bring in great return. Whereas with the involvement of a mutual fund advisor, the information is detailed to take informed decision. The biggest advantage of directly applying on the website is that you can easily research information to the best of your abilities. There’s no room for confusion or delusion in anyway.
The listed below are the types of Mutual Funds to be found in India:
SEBI (Securities and Exchange Board of India) has categorized mutual funds in India under 4 main categories:
- Equity– Equity schemes are invested into stocks. These stocks can give huge returns directly linked with dipping risks in the short-term as their performance completely depends on how the stock market performs on a particular day. Individuals should look at a longer investment period of about 10 years for better output in terms of returns.
- Debt- Debt schemes invest in debt instruments. Investors opt for debt schemes to achieve short term benefits and are invested for a period upto 5 years. This investment is quite safe compared to the equity schemes. At least they have regular income attached to their face.
- Hybrid– Hybrid is a good mix of equity and debt. This scheme gives the investor the flexibility to balance out his risk appetite. It has elements of both
- Solution-Oriented- Solution oriented schemes focus on particular instruments for family planning, education etc. These schemes have a stipulated lock in period 5 years.
Few advantages of Mutual Funds:
- Diversification: Diversification is the amalgamation of investments and assets within a portfolio to minimize risk. Mixing retail stocks with industrial sector stocks. A truly diversified portfolio has securities with different capitalizations and industries, and bonds with different maturities and issuers.
- Economies of Scale: Mutual funds also provide economies of scale. Investment in a full portfolio at a point in times saves the charges of different level of investments.
- Easy Access: Trading on different securities become simpler and convenient with the help of mutual funds, making them liquid.
- Fund Management: The funds are largely handled by industry experts and highly knowledgeable individuals. These people mostly deal with high net worth individualsmake investments.
- Orientation: This is good for people who do not want to manage their funds single handedly, and wish to invest in the best of the securities possible. Individuals who want, liquidity and high growth.
The good mutual fund holds several different securities to gain diversification at low risk.