What is a Mutual Fund and how to buy?

 What is a Mutual Fund and how to buy it?

My aim is to let the general public know what a mutual fund is. So I am writing this article in very simple language. This article is for people who know nothing about mutual funds.

If you have a basic knowledge of Mutual Funds and want to understand the meaning of the terms used in Mutual Funds, you can read this article on Mutual Fund Dictionary.

Nowadays you may have heard about Mutual Funds from TV ads as well as from many people and you may have wondered what is Mutual Fund? How does a mutual fund work? So through today's post, I will try to remove all the doubts in your mind. Today we are going to know what is a mutual fund. 

What is a mutual fund?

A mutual fund is a fund (collection) in which a lot of investors' money is put together mutually. This group of funds is managed to earn the highest possible profits.

Simply put, a mutual fund is a fund made up of a lot of people's money. The money invested in the mutual fund is invested by the company in different places and efforts are made to give maximum benefit to the investor.

Any mutual fund is managed by a professional fund manager. The job of a professional fund manager is to take care of that particular fund and invest the money in the right place. Simply put, its job is to maximize profits by investing people's money. Mutual fund money is invested in different companies, not just in one place. Which makes it less likely to lose money. This is because even if one of the companies suffers a loss, the rest of the companies continue to grow during that time and thus avoid the risk of further losses.

Differences between mutual funds and the stock market

Many people think of mutual funds and stock markets as similar. The difference is that the risk is higher in the stock market and the profit is higher, but if you invest in a mutual fund, you have less risk of losing money and the profit is lower than in the stock market. Money in the stock market is invested in a single company, while in a mutual fund, the fund manager invests little in different companies.

You can read more about the stock market at the following Link: share market information

How to buy a mutual fund

In today's internet age there are many ways to invest in home-based mutual funds. You can invest your money in mutual funds through many Android apps as well as websites. Some of the popular mutual fund apps are as follows. Groww, My cams, InvesTap, Ktrac mobile app, Paytm money, ET Money, etc.

But I would advise you to use the Groww app to invest in mutual funds. Because you don't have to pay extra for this app. This app withdraws commission from direct mutual funds without getting commission from their customers.

Types of Mutual Funds: 

Debt- Mutual funds that invest in bonds, treasury bills. Now bonds can be of government or a private company, it depends on the scheme. Suppose a bond is a loan

Equity - Equity is becoming a business partner. To put it simply, you are the owner of that business. This means that when mutual funds invest in equities, they become business partners. The amount you earn depends on the performance of that business. It is not your job to discover what that is and to bring it about. All these decisions are made by the mutual fund manager.

Hybrid - A mutual fund that invests in both equity and debt.

Types of Debt Fund

Many people look down on these funds. He says, “These funds are useless, we want to get rich quick. Don't give us these funds. Provide high-risk funds. ” This is the opinion of most people about these funds.

Here is the story of my friend. My friend used to say, "I want to make a long-term investment." Need to have a debt fund, ignore this.

The market fell, some unexpected things happened in his life. Now he needed money. With the market falling, there would be a loss if the money was withdrawn now.

But if this friend had a debt fund, there would have been no loss in that fund, and if there had been, there would have been a possible reduction. Short-term debt funds have lower risk and lower returns than equity. You can use this fund for the short term as well as an emergency fund.

That's what Warren Buffett said.

Rule No. 1- Never lose money

Rule no. 2- Never forget the first rule.

MIP- A fund that invests a small amount in equity More than 3 years, moderate to high risk

Extreme risk for less than 3 years

Gilt - The government treasury invests in bills and bonds. The money is completely safe as the government guarantees it.

More than 3 years, moderate to high risk

Extreme risk for less than 3 years

Long Term Bond - More than 3 years, moderate to high risk

Extreme risk for less than 3 years

Corporate Bond - In the bond of a government company or a private company

1-3 years moderate risk

Very high risk in less than 1 year

Short Term Debt Funds - Low risk 6 months to 3 years

Ultra Short Term Debt Funds -

Low risk for 1-9 months investment

Liquid - Invest in a place where there is a lot of liquidity. Low returns but high liquidity.

More than 7 days for investment less than 1 month

Tip - One thing to note here is that the comparison made above is made in Debt Fund, very risky means it is more than another Debt Fund, not more than Equity Fund. Comparing all the funds, you can see which fund is more dangerous in Table No. As seen in 1.

Types of Equity Fund

Sector Funds - Investment in companies in the same sector, such as Bank, Automobile, Pharma, IT. This fund is most risky, as it involves investing in companies in the same sector.

Small-Cap Funds -

Smaller companies where higher returns are riskier than Mid Cap Funds.

Mid Cap Funds -

A medium company where higher growth and higher returns are expected. More risk than Large Cap Funds.

Large Cap Funds -

Large companies whose returns and performance are more stable.

Diversified Equity Fund -

Investments are made in small, large, diverse companies, thus reducing risk.

Types of Hybrid Fund

Debt-Oriented Hybrid Funds - A fund that invests less inequity and more in debt.

Equity-Oriented Hybrid funds - A fund with high investment in equity and low investment in debt.

Conservative Hybrid Fund - 75-90% in debt and 10-25% in equity is invested in the fund.

Balanced Hybrid Fund - The fund has 40-60% investment in equity and 40-60% in debt.

Aggressive Hybrid Fund - This fund has 65-80% investment in equity and 20-35% investment in debt fund.

Multi-Asset Allocation - A fund that invests in at least 3 types of assets (such as gold, equity, debt) and has a minimum investment of 10% in each asset.

Retirement Fund - A retirement fund in which the money is locked for a period of 5 years or the retirement age whichever comes first.

Children’s Fund - A fund for children in which the money is locked for a period of 5 years or 18 years whichever comes first.

Mutual funds are classified in another way.

Debt, equity, hybrid funds are all Open-Ended or Closed Ended. We will see below what this classification is based on.

1. Open-Ended Funds- Funds in which old investors can be sold at any time and new investors can participate at any time.

2. Closed-Ended Funds- This fund is a bit like FD. These mutual funds have a fixed investment period. Investors can participate in NFO (New Fund Offer). This fund is available for buying and selling the stock exchange. If you want to sell this fund ahead of time, you have to sell it on the stock exchange. General: It is easy for an individual to get an open-ended fund. If you are a new person, ignore Closed-Ended Fund.

Tax exemption 80 C

ELSS- Equity Linked Saving Schemes, which exempts income tax under 80K. You can get a discount of up to Rs 1.5 lakh. This mutual fund falls into the equity category. The fund has a lock-in period of 3 years. This means you will not be able to withdraw money from this scheme for 3 years.

Methods of investing in mutual funds

An investor can invest in a mutual fund in two ways. The first is Lump Sum and the second is SIP i.e. Systematic Investment Plan.

1) Lump Sum

In the lump-sum investment type, a large amount of money is invested by the investors at once. And again, this would mean that you have to spend on these processes.

If you have a lot of money and you are thinking of investing it in the right place, you can invest it in a lump sum mutual fund type.

2) Systematic Investment Plan (SIP)

A SIP is called a systematic investment plan. In this case, the investor regularly invests a certain amount in the mutual fund. This period of investment can be per week, per month, or every four months.

This type of SIP is for people who are doing jobs, etc., and whose salary is per month. Such people can invest in a mutual fund by setting aside some money from their salary every month as an investment.

Riskometer

How to choose a mutual fund?

Purpose - What is my purpose? Retirement? The child's education? To get married Home? Car? Why am I investing? How much will that cost today? How many years am I going to do this thing? So how much will it cost to catch inflation?

Time - How much time do you have to accomplish your goal?

How much - how much will you have to invest to meet the target during this period? How Much Money Does a Lump Sump Make? How much would it cost to make an investment every month? Or if the investment is increasing every year, how much should it be increased?

Tax - Can you save income tax in ELSS? What are the other taxes?

Refund - You can estimate what% return you want. Then work from the bottom of the list eliminating issues that aren't worth the fight. Look at the performance of that mutual fund for the last 10 years. See if the fund is performing consistently?

Benefits of mutual fund

Although there are many fields of Mutual Funds, today I will try to give you complete information about the important fields.

1. Professional Management

The money you invest in Mutual Funds is managed by Mutual Funds experts with their experience and skills.

Before investing this money, they research the fund in which the money is collected and collect the information, if after that according to the information collected by them, then they invest only if their money increases.

2. Diversification (Diversity)

The basic mantra of safe investment is that instead of putting your money in one place, distribute it in many places and invest in many places. Every mutual fund invests money in different places.

Good funds can be invested not only in other companies but also in other sectors or perhaps in companies of different sizes. Which gives maximum protection to the investors.

3. Variety (option)

There is something for every kind of person in Mutual Funds today. There are all types of funds for those who want more returns, from maximum secured funds to those with high returns, and who want to have a safe investment.

4. Convenience (Convenience)

You can invest in Mutual Funds very easily. You can also withdraw money from funds with the same ease. To invest, you have to fill a form that you can fill from both online or offline or anywhere.

After this, you can sell or buy funds both online or offline. Mutual Funds have a lot of options as well as a lot of facilities.

5. Affordable (Cheap)

The share price of big companies is very high. Many times you want to invest in those companies, but you are unable to do so because of your low budget. While a lot of people have the money together in Mutual Funds, your money is invested in big companies.

And your money earns more profit there. Mutual funds are a way for not only big but small investors to invest in large companies through Mutual Funds.

6. Tax Benefits

Whenever you invest in the stock market, you have to pay tax to buy or sell shares. But in Mutual Funds, you get tax exemption.

In some funds, you do not have to pay any tax on your profits for some period. Tax exemption is also a reason why they are becoming very popular.

Before investing in Mutual Funds, collect all the documents and all the information related to the funds. You will be responsible for any damage.