Everything About Mutual Funds

By Author: Shashank Pawar
Total Articles: 13
Comment this article

This article aims to answer the question, “What are mutual funds?” by detailing their various aspects, features, and benefits to give you good background information on mutual funds basics.

What are Mutual Funds?
A mutual fund is a financial instrument where collected funds from investors are placed in securities such as bonds, stocks, money market instruments, and others. The scheme is handled by professional managers who perform research to find suitable assets to invest in that can produce income or capital gains for investors. The managers structure and maintain the fund’s portfolio as per its stated investment goals.

Mutual Funds Basics
Individual and small investors can use mutual funds to access professionally handled portfolios of bonds, equities, and other instruments. A mutual fund invests in a high number of securities and its performance is monitored as the change in its total market cap which is derived by its investments’ aggregated performance.

Benefits of Mutual ...
... Funds

Diversify Your Risks
Compared to stocks, mutual funds are safer as you can exercise the option to invest in secured debt plans. You need not worry about rising and falling share prices as your debt fund will give your solid returns while keeping your capital secure. If you wish, you can opt to place your money in a balanced fund that combines both equity and debt instruments to reduce risk while offering higher returns.

Small Investment Capital
You can invest in a mutual fund with an amount as low as Rs. 5000. Or, you can elect to invest in a SIP (systematic investment plan) where monthly installments can be as little as Rs. 500. Therefore, even those who do not have a high amount of income can benefit from mutual funds as the investment capital required is very small.

Investment Knowledge
You need plenty of expertise and experience to invest in stocks. Plus, you need to calculate risk vs return precisely. People with limited financial knowledge can instead prefer mutual funds as they are handled by professional managers who are skilled in selecting the best instruments that yield the best returns while minimizing risk.

Disciplined Investing
One of the key benefits of mutual funds is it facilitates disciplined investing. Due to volatile share prices, you may indulge in short term buying and selling due to greed or fear. This can lead to losses. However, mutual funds inspire long-term investments and you need not worry about everyday changes in stock prices. Plus, a SIP plan can help you to invest in a disciplined manner to help you meet your long-term financial goals such as saving money for your child’s education and marriage, and your retirement.

Variety of Schemes
You can select the type of mutual fund you want based on your investment objectives and risk profile. For different investment needs, schemes such as liquid funds, income funds, monthly income plans, and balanced funds are available. Investors with limited appetite for risk can opt to place their money in these schemes to keep their capital secure while availing sizeable returns.

Lower Transaction Expenses
As mutual funds sell and buy instruments in large volumes, their transaction expenses are lower per unit compared to what you may need to shell out if you trade in shares through a stockbroker. Therefore, you can save more on transaction costs by investing in mutual funds compared to stocks.

Conclusion
We hope this article has helped you learn all about mutual funds. They typically offer higher returns than bank fixed deposits and are more secure than stocks if you invest in debt plans. Be sure about your risk profile and your financial goals to invest in suitable mutual fund schemes.