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What Is A Mutual Fund And How Do I Invest In Them?

By Author: Bhagath Varma
Total Articles: 12

Very often people ask what is mutual fund investment? They carry a perception that it is a complicated investment option. The simple mutual fund definition would be that it is a type of investment that collects money from a wide pool of investors, to invest in equity, debt and international market securities besides gold basis its stated investment objective. You can rely on the skills of professional experts who manage the pooled money as fund managers of your mutual fund.

Investing in mutual funds provides you, as an individual investor, a medium to invest in a variety of securities across equity, debt and international markets which you may otherwise find challenging to invest on your own. Mutual Funds also provide economies of scale by allowing you to start with a minimum investment of Rs.500 per month via systematic investment plans or SIPs.

If you are wondering whether mutual funds would be suitable for your requirement, then here is some good news for you. Mutual funds offer such a variety of options to choose from that there will always be an fund that can work like a better alternative to some of the current investment options you might be used to like investing in shares, bank FD, PPF, Infrastructure bonds, Post Office Saving schemes, ULIPs, physical gold, real estate etc.

Let’s now explain how mutual fund investments can be better alternate to some of the options mentioned above. Let’s begin with some mutual fund basics. Each mutual fund scheme as explained earlier invests in a variety of asset classes as per its investment objective. So, you as an investor have the choice to invest in a few select mutual funds schemes that will offer you exposure across different asset classes be it equity, debt, gold, international market securities etc. Each scheme thus plays a specific role in your overall investment portfolio.

Even within the same asset class, you again have a variety to choose from. Say you are a conservative person and would like to invest in only debt funds. Now within debt mutual funds, you have the option to invest in a Govt. securities fund on one end of the risk spectrum or the choice of long term bond funds that invest primarily in bonds issues by corporates at the other end of the risk spectrum.
If you are an aggressive investor who likes to invest in stocks, you have the choice of small and midcap funds that invest in high growth opportunities but also come with significant risk. But if you are one of those who like the flavor of equities but prefers to play it safe, you have a variety of equity funds that invest in blue-chip companies that offer consistent returns owing to their stable nature of business growth.

Mutual funds are thus a great way of diversifying your portfolio and reducing concentration risk because you can choose a good mix of mutual funds that can complement each other. Also, you get to diversify risk not just at asset class level but even at sector levels within an asset class. Like in case of equity mutual funds, you can choose to invest in sector specific funds or go for a well-diversified equity fund that has a portfolio mix of large caps and small or mid-cap stocks. Sector specific funds invest in stocks of companies from a specific sector like banking or IT as part of their stated investment objective.

The best part about mutual funds is that you don’t need to do all the research required to choose which stock or which sector to invest in and how much to invest in these stocks or sectors. All the research is done by experienced fund managers supported by a team of research analysts whose daily job is to analyses companies and their performance. They keep buying or selling securities as part of portfolio management of the funds they manage. So you get access to professional management of your funds and don’t need to bother about where the stock market is headed every day or interest rates are heading north or south.

Are you now ready to invest in mutual funds? If still in doubt, www.mutualfundssahihai.com will help you with more on mutual funds meaning, their types, how to invest and lots more. And don’t forget that you can make an investment of Rs.500 every month to begin with or just Rs.1000 for a one-time investment. That isn’t too much to shell out given the benefits you will get, right?

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