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Understanding the basics of mutual fund investing
A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds).
Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy).
Understanding the mutual fund investment process
A mutual fund is a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. For an individual investor, having a diversified portfolio is difficult. Mutual funds helps the individual investors to invest in equity and debt securities simultaneously.
When investors invest a particular amount in mutual funds, he becomes the unit holder of corresponding units. In turn, mutual funds invest unit holders' money in stocks, bonds or other securities that earn interest or dividend. This money is distributed to the unit holders. If the fund gets money by selling some stocks at higher price the unit holders are liable to get the capital gains.
Why mutual funds are an excellent investment choice
The primary advantage of funds is the professional management of your money. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor the investments.
By owning "shares"(known as "units") in a mutual fund instead of owning individual stocks or bonds, your risk is spread out across multiple investments.
Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.
Just like an individual stock, a mutual fund allows you to sell the units at any time.
Buying a mutual fund is easy! The minimum investment is also very small. As little as Rs 500 can be invested on a monthly basis.
The evolution of mutual funds in India
The origin of mutual fund industry in India was with the introduction of the concept of mutual fund by UTI in the year 1963. It accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen a dramatic improvements, both qualitywise as well as quantitywise.
Understanding different mutual fund categories
Open-ended funds allow investors to enter and exit the fund at any time based on the current NAV.
Close-ended funds have a fixed maturity period and can only be traded on stock exchanges.
Invests in fixed income securities
Mix of equity and debt investments
Invests primarily in stocks
Short-term money market instruments
Government securities investment
ELSS funds with tax benefits
Specific sector investments
Child education and future planning
Regular income generation
Let us help you choose the right mutual fund for your investment goals