What is Mutual funds And how to invest in mutual funds. A full Guide [2020]

What are Mutual funds, what is mutual funds, how mutual are works, what is expense ratio in mutual funds, how to choose right mutual funds.
What is Mutual funds.

In today's time when all banks are reducing their interest rate every year. And this is the reason why mutual funds are becoming more popular. That is why mutual funds are becoming the subject of discussion today.

Since only gold and fd are not the real assets of the investment. That is why in today's post, we are going to tell you about the mutual fund. What is a mutual fund and how do they work? What is the right way to invest in Mutual Funds. 

Don't worry, in today's post, we are going to answer all these questions. Because I know what is going on your mind as a beginner. Because a few years before, when I stepped into this world of mutual funds. 

I had many questions in my mind, and I had to face many difficulties in finding answers to all these questions. You don't have to face these difficulties like me, that's why today I am going to explain you everything about mutual funds 

table of content

Let's first know what is Mutual funds.

What is Mutual funds?

In mutual funds, the money invested by a lot of investors is invested in buying shares, stocks and bonds of a company. And all the investors are given units by the mutual fund company on the basis of their investment.

A professional fund manager is selected to invest the capital at the right place and get as much profit and returns as possible, invested by investors.

And the job of that fund manager is to invest that capital in the right place and get the best returns. And the fund manager is given a share of 1 or 2% of the money invested by all investors, which is called the expense ratio.

Let us know how Mutual Funds work, so that you will know exactly what Mutual Funds are.

How Mutual funds are works? 

Let us assume that you want to buy in the shares of a good company for 10 thousand rupees, and since one share of that company is 20 thousand, and you only have ten thousand rupees.

In this situation, you will not be able to invest in that one company either, but if you invest those money in the mutual fund, then you can use that money to buy how many company's share.

Because the mutual fund company will create a fund of 100 people, in which everyone has invested 500, then the total amount will be 50000 thousand. And then that company will select a professional fund manager, who can invest those money in the right place and earn good returns from them.

That fund manager now buys 2 shares of a good company with your money, then in this situation all the investors who invested in that mutual fund, according to their investment in those shares, they would get units from that mutual fund company. 

All investors can redeem their money by selling their units whenever they want. And whatever returns or profits are received from that company are distributed among all investors.

Suppose if you invest your 500 rupees, then the mutual fund company will invest only 490 rupees from it and they save 1 or 2% of the rest. And that 1 or 2% of the savings that the company gives to that fund manager in the form of his salary. And this is called the expense ratio.

I think by this example you must have understood very well how mutual funds work. Let us know about the types of mutual funds.

Types of mutual funds 

Basically 4 types of mutual funds are very famous in India. let's know all types of mutual funds one by one.

Equity Mutual funds - 

All the money from equity mutual funds is invested in the stock market. And to buy the shares of a company, as it is said about equity funds, it has a lot of risk and it also gives good returns.

If you are ready to take the risk, then you can invest in this mutual fund. It is always said about such mutual funds. Invest in it for a long time, only then you can earn good returns from them.

Debt Mutual funds - 

It is the second most popular mutual fund in India. Whatever money we invest in it. That money is used by the mutual funds company to give loan to private company or government.

Hybrid mutual fund - 

Hybrid mutual funds are also called balanced funds. These are a mixture of debt and equity funds and their main objective is to keep the ratio of risk and reward balanced. 

That's why they invest only 50 to 70 percent of the money in the stock market. And save the rest of the money in the debt fund. This is a good option for those who want to invest more by taking least risk.

Liquid funds - 

Liquid funds are a type of debt fund. Who invest their money for a short time. Liquid funds invest their money in financial instruments such as bank fixed deposits. And its investment time is 90 days.

benefits of investing in Mutual Funds?

You get many benefits by investing in Mutual Funds. Let us know about all one by one.

 1. Safety -  

Before investing their money anywhere, a person definitely thinks about their safety. And you must have heard in your mutual fund ads that - Mutual funds are right. Apart from this, SEBI (Securities and Exchange Board of India ) is protected in India. 

That it keeps a close watch on where and how the fund manager is investing the money of that fund.

2. professional fund manager -

The biggest advantage of investing in mutual funds is that you get a professional fund manager at a very low charge of 1 or 2%, who has good knowledge of the stock market. And they know where and when to invest how much money and how to earn good returns.

3. Benefits of liquidity -

You have to pay a penalty for breaking the bank fd prematurely, but you can withdraw your money from the mutual fund whenever you want and apart from that you do not have to pay any kind of charge in it.

4. Tax benefit - 

You also get the benefit of tax saving by investing in mutual funds. And such funds are called Elss (Equity Linked Saving Scheme).

5. Diversification

There is a fundamental principle of safe investment. That all the money should not be invested in one place and it should be invested in different place. And through mutual funds, you can invest your money in different places and also in different sectors.

6. Veriety

There are all types of mutual funds in the market, where you have to choose which type of fund you want to invest in. Because there are also mutual funds with high returns, but they also have higher risks. There are also mutual funds with low returns in which you get more safety.

Drawback of mutual funds - 

With equity mutual funds, we invest in the stock of direct company in which risk is high. And in which there is no guarantee of interest

Conclusion - 

I hope you will liked the information given through this post what are mutual funds. If you like it, do share it and stay connected with us for more information like this.

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