Mutual Funds-Mutual Fund- It is a strategic investment schemes where the funds are deposited in different security and managed by fund managers to give you good returns. The fund managers are professionals and their only duty is to look for good returns.
General idea of Mutual Fund:
The trust in which you are investing collects investment from several other persons also and invest in common base investments like Equity Share, Debt, Gold, Money Market Instrument and other securities. The profit earned from the investments shared among the investors proportionately. The investment Plus share of the profit becomes your Net Asset Value (NAV).
you can easily understand Mutual Fund with the example:
Suppose, a land is about to be sold for Rs 18 lakh. Mr A wants to invest in this land but have only a capital of Rs 6 lakh. Mr A kept a manager Mr R whose duty is to find persons who wants to invest in the same scheme. Suppose Mr B is investing Rs 9 lakhs and Mr C investing Rs 3 lakhs.
Mr R purchased the land with the amount collected from the three investors. Some times passed and the price of the land increased to Rs 27 lakhs. Mr R sold the land and received Rs 9 lakhs as profit. He took 10% of the profit as his managing fee. Rest amount Rs 8.1 lakhs distributed among the investors. In that way Mr A received Rs 2.7 lakhs as his profit.
In the whole summary, Mr A, who was not able to invest in the land alone invested whatever capital he had. And earned return from the whole process. Mr R, whose duty was to manage the investors got the fee. The same thing happens when you invest in Mutual Funds. You invest your money, the Fund Manager looks after your portfolio and makes a good return for you. And for doing that he charges his fee.
Key Features of Mutual Fund:
- Capital Growth – Mutual Fund is taken as the option for capital growth. It is seen that Mutual Fund rises more quickly than other type of deposits.
- Risk Ratio – Mutual Fund has risk factor. There is a chance of turning negative return also.
- Convenience – Mutual Fund is considered as more convenient than other deposit schemes.
- Strategy – It is a strategic investment plan. If you are investing with good strategy, you may get good return.
- Reputation – The reputation of Mutual Fund Company to be carefully gone through. The return is dependent on the management of Asset by the mutual fund company.
Types of Mutual Funds:
There are several types of Mutual Fund scheme provided by mutual fund providers. The investor just needs to make the investment according to his objectives.
- Equity Fund – It deals with equity shares of the stock market.
- Commodity Fund – It deals with different type of physical commodities such as Wheat, Rice, Gold, Silver, Natural Gas etc.
- Debt Fund – It deals with security bonds with different companies which gives a regular income without having much risk.
- Balance Fund – It deals with both Equity and Debt Fund which may give growth like Equity Fund as well as sustainability with Debt Funds.
- Hybrid Mutual Fund – It also deals with both Equity and Debt Funds, and have ability to move towards one class of asset if there is a chance of more return.
- ELSS Mutual Fund – This mutual fund scheme gives you extra benefit of tax saving. It comes with a locking period of 3 years.
Is Mutual Fund a realy good option for investing:
Now a days we are watching TV ad “Mutual Fund Sahi Hai”. But is it really good investment option? We will know it:
Pros of Mutual Funds:
- Liquidity -The mutual fund comes with the option of liquidity at any time (exception ELSS). An investor can purchase as well as cell their Mutual Fund at anytime at the NAV (Net Asset Value).
- Diversity – Mutual Fund invests the Assets in diversified funds. The value of one class of asset may decrease it will not affect the whole investment since the investments has been made in different funds. It lowers the risk factor in comparison of investment in direct assets such as stock market.
- Expert Management – Mutual fund managed by experts whose only job manage the investment such a way that it gives the maximum return. The experts look upon the market condition and analyse the expectation of market. Thus the chances of return increases.
- Achieving Financial Goal – The Mutual Fund provides a good chance for achieving financial goals. Since the appreciation of capital may become much more than that of FDs or any other security deposits, that’s why people should invest in these funds.
- Size of Investment – Unlike all other schemes Mutual Fund give the opportunity to invest with a minimum of Rs 500. There is no upper limit for the investment. There is also options for SIPs where the investor can do investment on regular basis.
- Transparency – Every Mutual Fund companies keep transparency of their fund holdings. The investors can go through the company’s website. The investor also get NAV regularly.
Cons of Mutual Funds:
- Investment Cost – Cost of investment is high due to management by professional.
- Risk involvement – Risk Factor is complementary in Mutual Fund as it depends on market conditions.
- Dilution – Mutual Funds dilute your profit, since your investment is only a part of holding by the Mutual Fund company.
- Less Control on Investment – Mutual Funds give you less control of your investment. All the decisions are made by professionals.
- Tax Inefficiency – Investor need to pay Capital Gain Tax whenever payouts are made. The payouts are not in control of the Investor.
What is SIP?
If you want to invest in mutual fund and you don’t want to invest your whole capital once, so, yes there is still and option for your investment, which is SIP (Systematic Investment Plan). This scheme is provided by mutual fund company or Asset management companies where you can invest small portion of money periodically. The Asset management company will invest the same amount according to their NAV. This will allow you to raise capital with small amount of deposits.
We can easily understand the method of SIP, from the following table:
| Months | NAV | Amount Invested | Units Bought | Balance Units | Total Fund Value |
| 1st Month | 25 | 1000 | 40 | 40 | 1000 |
| 2nd Month | 26 | 1000 | 38 | 78 | 2028 |
| 3rd Month | 24 | 1000 | 41 | 119 | 2856 |
| 4th Month | 22 | 1000 | 45 | 164 | 3608 |
| 5th Month | 28 | 1000 | 35 | 199 | 5572 |
| 6th Month | 25 | 1000 | 40 | 239 | 5975 |
| 7th Month | 26 | 1000 | 38 | 277 | 7202 |
| 8th Month | 30 | 1000 | 33 | 310 | 9300 |
| 9th Month | 29 | 1000 | 34 | 344 | 9976 |
| 10th Month | 27 | 1000 | 37 | 381 | 10287 |
| 11th Month | 29 | 1000 | 34 | 415 | 12035 |
| 12th Month | 32 | 1000 | 31 | 446 | 14272 |
| Total Investment | 12000 | 446 | 14272 |
Important Keywords Related to Mutual Fund:
NAV (Net Assets Value)
Net Asset Value refers to the price of one unit of Mutual Fund. This is the price at which you buy or sell your Mutual Fund investment. The raise in NAV after buying the Mutual Fund becomes the return from the Investment.
Exit Load
Exit Load refers to the charges in curd by mutual fund companies on redemption of the mutual fund. This charge helps the mutual fund companies to held up the investment of the investor.
AMC
AMC (Asset Management Company) or in other words Mutual Fund Companies are actually the fund manager company which managers the investments of the investor. These Asset Management companies need to be registered to SEBI compulsorily.
STP
STP (Systematic Transfer Plan) is a way for the investor to switch between different types of mutual fund according to the period mentioned by the investor. This helps the Investors to go for Debt Funds in the downfall of Stock Market and reswitch it to Equity Fund during uprising.
Corpus
Corpus refers to the total amount investment in a particular class of Mutual Fund by the Asset Management companies. It means the total amount invested by all the investors in the particular class of a same AMC.
Portfolio
Portfolio refers to all the funds invested by an investor in one or more than one type of Mutual Funds. This would be the total value of the whole investment.
Compounding
Compounding is the method followed by Mutual Fund Companies by which the return earn by the mutual fund is get re-invested in the Mutual Fund again. This means you are going to get return from returns.
FAQs about Mutual funds:
1. Which is the best Mutual Fund plan?
Ans: Mutual Fund Plans is decided by your objectives, time period and risk potential. If you want quick return you need to take higher risk and invest in Small-Cap Equity Fund and if you want low risky scheme you may go for Debt Fund. If you go for the long term you can invest in Balance or Hybrid Fund.
2. When should I start investing in Mutual Fund?
Ans: There is no time better to start it now. There is no minimum age requirement for investing in Mutual Fund.
3. Why does disclaimer say “Mutual Funds are subjected to market risk”?
Ans: Obviously Mutual Funds are subjected to market risk. The Mutual Funds are affected by stock market directly or indirectly.
4. Which Mutual Fund is risk free?
Ans: There is no mutual fund scheme which is risk free. The risk factor is variable. It is higher in Equity Fund and lower in Debt Fund.
5. Which documents needed to create Mutual Fund Portfolio?
Ans: You only need KYC documents like PAN card Aadhar Card bank account or any other photo ID proof to open Mutual Fund Portfolio.
Conclusion about Mutual funds:
So basically this post is all about Mutual funds 2023. In this post we are discuss about how you can invest on mutual funds in 2023 and make your future better. although a small amount can make a big difference. So hope you guys like this post, please SHARE with your love ones and do COMMENT. If you want to join with us then click our telegram group and join as well.