Mutual funds

 Everybody wants to have a good income and a place where he can invest his savings and will get good returns.

That’s why some people put their money in bank so that they can get fixed income.

Some people make Fixed Deposits,

Some invest in gold or share market,

While some are confused where to invest their savings.

So here it is the best option for you all – MUTUAL FUNDS.

How many of you’d invested in mutual funds?

I’m sure the number will be low.

Do you question yourself, why you had not invested in mutual funds? Simply because

-         you get scared

-         you don’t have correct information.

-         you think that it is just an another scheme that will collect money and eventually will defraud you?

But let me tell you that mutual fund is 100% safe because it is regulated by Securities and Exchange Board of India (SEBI). There is nothing to get scared. You just have to play smartly.

So now let’s understand what is mutual funds? 

The meaning of mutual fund is as its name suggests that ‘mutual’ means mutually some people invest in a fund that is further managed by professionals of an asset management company.

What that professionals do is that they safely invest your money in share market and after getting returns, they keep 2 or 3 % with themselves as fee and the remaining profit is all yours.

People who don’t have knowledge of share market don’t invest there but they can invest in mutual funds so that highly qualified professionals can invest their money in share market and easily get high returns.

So, mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio.

One of the most famous mutual funds in the investment universe is Fidelity Investments' Magellan Fund (FMAGX). Under Lynch's tenure, Magellan's assets under management increased from $18 million to $14 billion. Even after Lynch left, Fidelity's performance continued strong, and assets under management (AUM) grew to nearly $110 billion in 2000, making it the largest fund in the world.

DIVERSIFICATION, or the mixing of investments and assets within a portfolio to reduce risk, is one of the major advantage of investing in mutual funds. Experts advocate diversification as a way of enhancing a portfolio's returns, while reducing its risk.

DIWORSIFICATION—a play on words—is an investment or portfolio strategy that implies too much complexity and can lead to worse results. Many mutual fund investors tend to overcomplicate matters. That is, they acquire too many funds that are highly related and, as a result, don't get the risk-reducing benefits of diversification. 

So now let us understand the types of mutual funds.

TYPES OF MUTUAL FUNDS

There are three types of mutual funds.

1.EQUITY FUNDS 

These are invested in equity share market.  They possess high risk and high return. Because you win some, when you lose some. Within this group, there are various subcategories. Some equity funds are named for the size of the companies they invest in: small, mid, or large-cap.

2.DEBT FUNDS

It focuses on investments that pay a set rate of return, such as government bonds, corporate bonds, or other debt instruments. The idea is that the fund portfolio generates interest income, which it then passes on to the shareholders. They possess low risk and accordingly you will earn less profit.  

3.BALANCED FUNDS

In these funds, your some part of money is invested in equity funds and some part in debt funds. So that your risk will be balanced and you will get a satisfactory profit. You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations. Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. In these types of funds, the major advantage is that you will get balanced risk factor. The objective is to reduce the risk of exposure across asset classes. This kind of fund is also known as an asset allocation fund. 

There are also two major types of funds on the basis of taking capital out.

-OPEN ENDED FUNDS

Open-end funds are traded at times dictated by fund managers during the day. There is no limit to how many shares an open-end fund can offer, meaning shares are unlimited. Shares will be issued as long as there's an appetite for the fund. So when investors buy new shares, the fund company creates new, replacement ones.

-CLOSE ENDED FUNDS

A closed-end investment is overseen by an investment or fund manager, and is organized in the same fashion as a publicly-traded company. This type of fund offers a fixed number of shares through an investment company, raising capital by putting out an initial public offering (IPO).

Closed-end funds can be traded at any time of the day when the market is open. They can’t take on new capital once they have begun operating

Now you would be eager to know about how to select a best mutual fund for yourself and how to invest in it?

I will be posting my next article on that. 

SO STAY TUNED AND KEEP INVESTING!