Understanding Of Mutual Funds For Beginners ...

 

         Hello Friends!!! We already have disused today's  topic in my previous blog https://priyankavanshika.blogspot.com/2020/10/save-money-grow-money.html .But today we are going to discuss more about it. So before investing first let's understand about mutual funds. Some people think that mutual funds are only stock market investment. Means organizations investing in mutual funds invest your money in equity or stock market. But it is an investment in gold, real estate and debt funds also. “What is the difference between investing in the stock market and investing in mutual funds?” When you are  investing in the stock market you are the boss. It means you have enough knowledge of the stock market. One thing is If you invest in the stock market you have to invest high money for purchasing expensive shares such as blue chip or A grade stocks. It means a big amount of your money is invested for purchasing that share itself . In mutual funds, mutual fund organizations take small amounts of money from different people that have money invested to purchase that blue chip and A grade stocks. This collected  money invests in different opportunities, when these organizations gain, they distribute some percent of it between investors. Every mutual fund company comes up with different mutual funds types.No doubt there is risk in the stock market and mutual funds too.

 Types of Mutual Funds 

1. Equity mutual fund => collect money from people and invest in the stock market.

2. Debt Fund=> collect money from people and invest in debt (risk is less because there is no stock market)

3. Hybrid Mutual Fund=> it is little bit equity and little bit debt

4. Solution Oriented mutual Fund=> it is for time period solution, after particular time period you can exit your moneyfor example Child Education Fund, Child Marriage Fund, etc.

5. Other Mutual Funds=> collect money from people and invest in index funds such as Nifty and Sensex.

                

    There is one more type of mutual fund called Liquid Fund. Liquid mutual fund is a type of mutual funds that invest in securities with residual maturity of upto 91 days. For example if  I kept my money in a savings account I would get 4-5% interest. So I decided to invest in a Liquid mutual Fund. In a liquid mutual fund, it takes my money for a short time from investors for 1 day to 91 days. Liquid funds don't have lock up periods. Maturity period up to  91 days. Liquid funds have less risk. Return on investment most of the time would be 7% to 8% which is higher than saving account interest. If you want to exit from these mutual funds you can exit any time. Tax should be payable in this mutual fund.

Obviously there are some advantages and disadvantages of mutual funds. 

Advantages of Mutual Funds :

1. You can invest less money but you will get diversification.

2. You will get fund manager expertise by investing less money too.

3. You can link your bank account to SIP (Systematic Investment Plan) which helps to directly invest your money in SIPs.

4. Investment is flexible which means you can withdraw your money anytime .

Disadvantages of Mutual Funds :

1. Some organizations are not focusing on the profit of mutual funds, they only focus on collecting money from people.

2. If you redeem your money from mutual funds and you are in loss due to a fallen market but the investment manager wants to invest more in stocks. in that case loss will be applicable for both mutual fund managers and you.

3. Mandates of mutual funds are restricted due to which you will not gain profit as per your expectation.

I think now we are more clear with mutual funds. I hope this information helps you. Thank you !!!