What are mutual funds, know the basics before investing money

Investment Tips: Nowadays many people are betting on mutual funds to fulfill their dreams. In the last few years a lot of investors have invested through mutual funds. Most of them are investing regularly in mutual funds regardless of the market volatility. However, the industry always attracts new investors who are not sure about the basics of mutual funds. If you are one of the new entrants, you should know a few important things.

What is Mutual Fund?

A mutual fund is an investment vehicle that you can use to invest in commodities like bonds, stocks (Indian as well as foreign) and gold. Mutual funds collect money from individuals, pool it together and invest the money in specified instruments on their behalf.

As stated earlier, the investment can be in a specified instrument. For example, an equity scheme will invest in stocks, a debt fund will invest in bonds and a gold fund will invest in gold. There are also hybrid funds that can invest in a combination of equities and bonds, sometimes even gold. While a mutual fund scheme can invest in a specific theme or sector, there are also schemes that invest in foreign stocks.

Then what is the illusion?
Sometimes investors use mutual funds to talk about a fund house. For example, it is very common for investors to say that I have invested in SBI Mutual Fund. In fact, many investors opt for fund houses sponsored by banks without even trying to know the details about the scheme. Hence, they invest in HDFC, ICICI, Axis, SBI etc.

There is another group of investors who invest in a Systematic Investment Plan (SIP). They want to say that they are investing in a particular scheme through SIP. However, they are so happy with the features of the SIP that they completely ignore the plan details.

keep these things in mind
New investors should keep this in mind that one always invests in mutual fund schemes. Certainly, the reputation and stability of the fund house matters, but it cannot be the only criteria for investing in mutual funds. Always choose a mutual fund scheme that matches your financial goals, investment horizon and risk profile.

For example, if you are a conservative investor looking to invest for a few days or weeks, you should opt for debt mutual funds like liquid funds. If you are an aggressive investor who wants to achieve long-term financial goals for at least 20 years, then you should invest in Equity Mutual Funds.

Benefits of investing in mutual funds
Lastly, what is the biggest advantage of investing in mutual funds? One- They allow you to invest a small amount – like Rs.500. Second, you will get the services of a fund manager for a small fee. This means you don’t have to worry about managing your investments, a professional fund manager will take care of it for a small fee.

(Investment advice in any fund is not given by ABP News here. The information given here is for informational purposes only. Mutual fund investments are subject to market risk, read all scheme documents carefully. NAV can fluctuate depending on the factors and forces influencing the security market including interest rate fluctuations.The past performance of a mutual fund may not necessarily reflect the future performance of the schemes. The Mutual Fund does not guarantee or assure any dividend under any of the schemes and is subject to the availability and adequacy of distributable surplus. Investors are advised to review the prospectus carefully and seek specific legal, tax and scheme You are requested to seek expert professional advice regarding the financial implications of investing/participating in

Read also:

Multibagger Stock Tips: This multibagger stock has gained 210% in one year, will you buy?

Paints Price Hike: Another blow of inflation in festivals, house painting – paint becomes expensive, prices of paints increased by 10 percent