Mutual Funds are created by a large number of investors with similar financial goals who invest their money in a diversified portfolio comprising bonds, equities, money market instruments, or securities.
Mutual funds offer investors a convenient method to access diverse portfolios managed by experienced experts. These funds are defined by their investing objectives, the type of securities they invest in, and the expected returns. Expected returns are calculated after considering costs such as yearly fees, expense ratios, and commissions, which can reduce overall returns. Despite this, Mutual Funds are a favorite investment instrument. It offers many benefits to the investor and can be a good part of their retirement planning.
Mutual Fund investments happen in mainly the following categories – Bonds, Stock, and Money Market instruments.
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A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investment.
Why Is Diversification Is Important..?
There’s very common saying “Do not keep all your eggs in same basket” .Diversification means same, When you buy a mutual fund, your money is combined with the money from other investors, and allows you to buy part of a pool of investments. A mutual fund holds a variety of investments which can make it easier for investors to diversify than through ownership of individual stocks or bonds.
Not all investments perform well at the same time. Holding a variety of invest-ments may help offset the impact of poor performers , while taking adv-antage of the earning potential of the rest. This is known as diversification.
You may not have the skills and knowledge to manage your own investments or want to spend the time. Mutual funds allow you to pool your money with other investors and leave the specific investment decisions to a portfolio manager. Portfolio managers decide where to invest the money in the fund, and when to buy and sell investments.
Mutual funds are widely available through banks, financial planning firms, investment firms, credit unions and trust companies. You can sell your fund units or shares at almost any time if you need to get access to your money. But you may get back less than you invested.
The performance of a mutual fund is reviewed by various publications and rating agencies, making it easy for investors to compare funds. An investor is provided with regular updates, for example daily NAVs, as well as information on the fund’s holdings and the fund manager’s strategy.
As a small investor, you may find that it is not possible to buy shares of larger corporations. Mutual funds generally buy and sell securities in large volumes which allow investors to benefit from lower trading costs. You can invest with a minimum of Rs.500 in a Systematic Investment Plan.
Mutual funds can be used to meet a variety of financial goals. For example:
Systematic Investment Plan (SIP) is an investment route offered by Mutual Funds wherein one can invest a fixed amount in a Mutual Fund scheme at regular intervals– say once a month or once a quarter, instead of making a lump-sum investment. The installment amount could be as little as INR 500 a month and is similar to a recurring deposit. It’s convenient as you can give your bank standing instructions to debit the amount every month without the hassle of having to write out a cheque each time.
Invest on a pre-set date every month, makes you set aside fixed sum of money to invest and gradually turn you into a disciplined investor
You get the more units when the market go down and Less when it goes up. Thus you average out the cost of buying Mutual fund units.
SIP offers convenience since you invest a small amount In every period without affecting your household
budget.
The longer you stay invested, more is the benefit of compounding. It is like earning interest on interest. Hence start an SIP early& enjoy the power of compounding
SIP is a smart tool that helps break your big goals into small Amounts. Ascertain the investment amount & start investing Regularly through an SIP to achieve.
