One of the best and effective ways to multiply the savings is by investing in mutual funds. Since it needs the expertise to invest in stocks; therefore, most of the newbies prefer mutual funds for the initial years. However, even before you start investing, read the following post to know everything about mutual funds.
Once in a while, you must have heard a monologue about how investing in mutual funds is one of the best ways to accrue exposure to the debt and equity market. However, despite being simple to understand and appropriate for novice investors, not everyone prefers investing in mutual funds because of the lack of knowledge.
If you are sailing in the same boat, this post is just for you. Scroll down and read everything about mutual funds that you must know before investing.
What are Mutual Funds?
Considering mutual funds as an alternative option to stocks and bonds doesn’t define the true meaning of it. On the contrary, mutual funds are nothing but money accumulated by several investors and invested in stocks, bonds, money market, and other relevant types of securities. Being a buyer of the fund, you would get a comparative share of expenses, income, profits, and losses of the fund.
The main characteristics of Mutual Funds in India are:
- Management by Professionals:
Right from the selection to the management, everything is done by experienced professionals who invest the money in building a portfolio. These fund managers are there to handle and operate your diversified portfolio in an efficient way.
- Possession of Fund:
Instead of possessing individual securities, mutual funds offer you a share of it. You have the allowance of investing any sum of money as per your choice. Just like you, there are several other investors involved in one fund. And, every shareholder gets the profit and loss equally.
- Portfolio Diversification:
As a mutual fund investor, it is easier for you to diversify the portfolio and spread it across different types of securities to decrease the risk. By diversifying the portfolio, the stress of price fluctuation minimises.
Types of Mutual Funds:
The classification of mutual funds is done on the basis of different objectives, such as:
- Debt Funds
- Hybrid Funds
- Money market Funds
- Equity Funds
- Diversified Funds
- Tax Saving Funds
- Index Funds
- Sectoral Funds
Apart from tax-saving schemes, most of the mutual funds don’t come with any specific tenure. Hence, you can withdraw your money any time you want. Being extremely liquid, these funds take up to three days for processing.
- Less Risk:
As compared to investing in individual shares, mutual funds are less volatile. A large amount of money is collected by different investors who have invested in different companies after a thorough research. Therefore, this accumulation of money and diversification minimises the risk to an extent.
So, this is the basic knowledge that you must acquire of mutual funds. However, before selecting the fund, make sure it compliments your financial goals and has good past performance.