If you think that the world of Mutual Funds is intimidating, complicated and definitely not for you, be prepared to be surprised. Thousands of investors, who share a common financial goal, pool in money to create a invest-able corpus of any Mutual fund.
The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. A mutual fund is nothing more than a trust that is mutually beneficial to all those who’ve put money in it.
Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:
As an individual you might not have the knowledge stock markets, or would not have the time to track the day to day movement of your stock holdings. You wouldn’t know where to put your money, on what basis to choose a company to invest in, how often to trade the securities you’ve bought, you might not even have enough money to buy shares in the company of your choice.
So what you do is put your money in a mutual fund, which invests the money contributed by a number of people like you in securities such as stocks, bonds, money market instruments, even in assets like real estate and gold.
To do this, mutual funds offer different schemes, each having a specific and defined investment goal. So, all you do is find one that matches your needs and buy shares in the assets of that scheme. These units that you buy represent your share in that scheme, much like shares in a company. As mutual fund is organized as a trust, which in turn appoints a Fund Manager to carry out the investment activity on its (and your) behalf.
In this series of articles we will we will cover following topics and understand all about Mutual Funds.
- The Benefits of Mutual Funds
- Types of Mutual Funds
- Benefits of Diversification
- Significance of Liquidity of Fund Portfolio
- Growth Investing vs. Value Investing
- Rupee Cost Averaging through Systematic Investment Plan
- Safety of Bond Funds
- Choosing between Growth or Dividend options
- Tax Benefits of Mutual Funds
We would be glad to answer your queries about Mutual Funds and would also appreciate your feedback and suggestions.