What is Mutual Fund ? Full Details 2024

You must have heard the name of a mutual fund, but you might not be knowing what is mutual fund ? How it works and how you can earn money from mutual funds. If you do not know about it, then today I am going to give you complete information about mutual funds in this article.

Many people think that mutual fund is a risky business in which only high business profile people can work. Investing money in it is not less than a threat. Investing money in mutual funds might go in loss. Various types of questions come to the mind of the people.

Just as incomplete information of any work can harm you, in the same way, due to incomplete information, you can also face loss in mutual funds. But if you gain the complete information about the work, then it is sure that your will be going in profits.

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What is mutual fund?

In mutual funds, companies collect money from investors. They invest this money in assets such as stock markets, bonds and government securities. In return, mutual funds also charge fees from investors.

There are several different mutual fund houses in the country, which also appoint managers to make investments. Managers have a good knowledge of the market, who invest in such a fund, which results in maximum profit.

To invest in mutual funds, these companies earn commissions from other investors. For those who are not fully aware of the share market, mutual fund investment can be a good option. Investors can choose the scheme according to their financial goals.

Mutual funds can be a good option for investment, where you also get good returns. And here the risk is also less as compared to the stock market. It is also not necessary that everyone understand about mutual funds.

Therefore it is important to know about this before investing in Mutual Fund. So that before investing in it, you can help in making decisions. Let’s know what is a mutual fund, how much of it is there, how much return can be earned. Also know how to invest in mutual funds.

How many types of Mutual Funds are there in India ?

• Equity Mutual Fund
• Debt Mutual Fund
• Hybrid Mutual Fund
• Solution Oriented Mutual Fund

Equity Mutual Fund

In equity mutual funds, investors invest the money directly in the form of investment shares. These schemes can be risky for a short time, but in the long run, this scheme helps you get the best returns.

In this type of Mutual Fund scheme, your return from investment depends on how the stock performs. Investors whose financial goal is to be completed after 10 years, they can invest in such Scheme. There are also ten different types of Equity Mutual Fund schemes.

Debt Mutual Fund

Debt mutual fund schemes invest in debt securities. If you want to invest for a short time. So this scheme can prove to be good for you. It is okay to invest in this scheme for a period of less than five years. These schemes are less risky than other schemes and offer better returns than bank fixed deposits.

Hybrid Mutual Fund

Under the hybrid mutual fund scheme, any investor can invest in both equity and debt. But while investing in this scheme, it is important to take full care of your risk taking ability. The hybrid scheme is divided into six categories.

Solution Oriented Mutual Fund

Solution oriented Mutual Fund schemes are made according to a specific goal or solution. In this scheme, any investor can invest keeping in mind the goals like his retirement, good education of children, marriage of children. In these schemes, you have to invest for at least five years. So you can get good returns.

Some important things before investing in mutual funds

1. Before investing in any scheme, you should know what is your goal to invest. How much budget you have to invest and how long you can stay in this plan.?

If you have to invest in Mutual Funds for only one year or two years, then there is a separate scheme of Mutual Funds for that. If you have to invest in Mutual Funds for 5, 7, 10 years or more then for that there are other schemes of mutual funds, about which you can invest.

For example, if you are investing for a short period of time, you can invest in debt funds or liquid funds. But if you are investing for a long period, then equity mutual fund is the best scheme.

2. When you decide the period of investment according to your budget, then you have to ask yourself the question that how much risk you can take for this investment, keep in mind that to get a higher return, it does not take much risk.
3. In the investment, not only the returns are important, but also the capital protection i.e. the security of your invested capital also matters.
4. Investing in a mutual fund is not a guarantee that if a fund has done a good performance till now, then it should do a good performance even further, but you still because of the past performance of different funds.
5. You can do a comparative study of which fund has a consistency in performance, and its performance fluctuations are not very different from market and economy. So that it will help you to choose your favorite fund scheme.
6. Apart from this, you also get an idea of the average returns received from different funds so far. Or you can see the different ratings of these funds by visiting the website of these companies.
7. While investing in any type of mutual fund, be sure to see what are the expenses related to investing in it, because these expenses may reduce your net return. These expenses are entry, exit load, asset management charge, expense ratio, etc.
8. Although mutual fund schemes do not charge an entry load, but many companies charge an exit load when withdrawing money from the scheme before a fixed limit, which can be up to 3%. So invest in schemes where the exit load is low or not.
9. While investing in mutual funds, the companies in which you are going to invest, you must also check the records of the company and the manager who manages it before investing so that you can know how long these fund houses have been working.
10. It has been, how has it impacted in other schemes, how is the credibility of the company in the market. Also find out how much the experience of the fund manager of your scheme is and how long he has been managing this scheme.

Some Important Benefits of Mutual Funds? Mutual Funds Benefits

• The biggest advantage of investing in Mutual Fund is that you can get much more benefit from FD here in the long run. In fixed deposit FD you get interest only near maximum 7% whereas in other mutual funds you can get more than double of it.

• You can start investing in Mutual Funds with very less capital. This is a great way to start investing with less capital: Here you can start investing with just Rs 100.

• Mutual funds are managed by a professional manager ie experts. This manager, who has a good knowledge about the market, handles the fund according to the market. So its biggest advantage is that you do not need to have knowledge of the stock market.

• Higher Returns than Traditional Investments: Investing in Mutual Funds gives you far more benefits than FDs or Savings Accounts in the long run. If you want to invest money for 5 to 10 years, then Mutual Fund can be a good option for you. Therefore, it must be considered.

• All mutual fund companies take money from investors under the supervision of SEBI (Securities and Exchange Board of India). So your money invested in mutual funds is safe. SEBI fund management companies are closely monitored so that these companies do not misuse investors’ money.

• By investing in ELSS (Equity Linked Savings Scheme) fund, you can save a significant amount of your tax. You have to invest in it for at least 3 years. This gives you a rebate of up to Rs 1,50,000 on your annual taxable income.

In this article, we have told you what are the benefits of a mutual fund.

We have discussed about

• what are its benefits so that you too can take advantage of it?
• what are the things you need to keep in mind while investing in a mutual fund?

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