The Mutual fund is a pool of funds that collects money from investors and invests the money on their behalf. These multiple investors which invest in stocks, bonds, cash or a combination of those assets. These charges a small fee for managing the money. These Mutual funds are an ideal investment vehicle for regular investors who do not know much about investing. The underlying security types called holdings, a combination to form one mutual fund, also called a portfolio. MF are like baskets. Each basket holds certain types of stocks, bonds or a blend of stocks and bonds to combine for one mutual fund portfolio. The Mutual Funds are managed by Asset Management Companies ( AMCs). These are each AMC that will typically have several mutual funds schemes. The total size of the MF industry in India crossed Rs 23 lakh crore in 2018.
Mutual funds are the most popular investment types for everyday investors. Why? Because they are simple investments to understand and they are easy to use in many ways, it is “Investing for Dummies.” in fact. The average mutual fund holds hundreds of different securities which means mutual fund shareholders gain important diversification at a low cost. The consider an investor who buys only Google stock before the company has a bad quarter. The earning/profits generated from this collective investment is distributed proportionately amongst. The investors after deducting applicable expenses and levies by calculating a schemes “Net Asset Value” or NAV. There is a simple put the money pooled in by a large number of investors is what makes up an MF. The MF is divided into several kinds of categories, representing the kinds of securities. They invest in their investment objectives and the type of returns they seek.
How to Invest in Mutual Funds:
Then we can either invest directly with a mutual fund or hire the service of a mutual fund advisor. Many individuals want to invest in mutual funds these days. If you are investing directly, we will invest the direct plan of a mutual fund scheme. If you are investing through am advisor or intermediary you will invest in the regular plan of the scheme. This identity your goals investors to first list out their goals. This we tell them would help them to decide on their MF investments. Also, they would know how much they need to invest to achieve each goal. We can easily access mutual funds nowadays. How to invest in mutual funds depends on person to person in MF. Indian mutual fund investors are given the following options:
- Direct Investment
- Online ( Distributors / Fund Houses)
- Direct Investment:
Visit the nearest branch of the fund house to collect an application form or download it from the web. We must go through the fine print carefully and clear all your doubts before investing.
These are sales professionals who reach out to the potential customers and inform them about the various fund options. We can choose a fund based on your income investment goal, and risk appetite. The agent helps you with the application process, transactions, redemption, and cancellation. They charge a commission for their services.
Buying / Selling Mutual Funds units online is common today. This helps om saving time and efforts, and most importantly, makes it easier to compare various funds to make an informed decision. Clear tax is one such portal that handpicks the best Mutual Funds from the country’s top fund houses for you absolutely free of cost .all you need to do is enter your personal details and make the payment. The entire process can be done in less than five minutes.
If you want to invest directly you have to visit the website of the Mutual Fund or its authorized branches with the relevant documents. It is an advantage of investing in a direct plan is that you save on the commission and the money invested would add sizeable returns over a long period. The biggest drawback of this method is that you will have to complete the formalities, do the research, monitor your investments.
Why Mutual Funds :
Mutual Funds investment offers various benefits that make them the most lucrative investment options.
Expert Money Management
These Mutual Fund companies have fund managers to choose the company shares, sectors, and debt papers in which is the pooled mutual fund investment would be invested. This is decision would be made by keeping the investor’s interest in mind.
Investing in mutual funds offer liquidity. You are allowed to redeem your investment at any time. You can buy and sell most mutual funds on any business day. There is no requirement of justifying your decision or searching for a buyer. This is unlike bank fixed deposits, Insurance policies. You just have to place a request with your fund house and they will credit the money into your bank account with 3-7 working days.
These are the lock-in period is the duration in which investors cannot withdraw their mutual fund investment or sell their Mutual Fund units. These various across mutual funds. Generally, open-ended funds do not have a lock-in period while the tax-saving funds (ELSS) have a lock-in period of three years.
The mutual fund’s investment is a very affordable option for those who wish to invest in small amounts. These are Mutual Funds houses levy a small fee called expense ratio, and range from 0.5% to 1.5% of the Mutual Fund investment. The expense ratio cannot exceed 2.5% as per SEBI regulations.
SIP Option :
If you don’t have a lump sum to invest, then you can invest in a Systematic Investment Plan (SIP). It is Our experts at clear Tax have handpicked best mutual funds to invest based on your requirements. The best thing about investing in mutual funds with clear Tax is that you can invest as low as Rs 500 an installment.
Flexibility to Switch Funds:
A good investor knows when to switch funds to keep up or stay ahead of the market. There are various mutual funds schemes that allow you to switch funds. These mutual fund managers will have an eye on the market to ensure. The best returns while not getting burnt by the market volatility.
Investment Based on Goal & Focus sector:
Each investor invests in mutual funds with a financial goal to achieve. There are funds with varying risk factors that help you in achieving all kinds of goals.
The Mutual funds are tightly regulated by the Securities and Exchange Board of India (SEBI). Their NAV ( Net Asset Value) is disclosed on a daily basis. Their portfolios are also disclosed each month and various other details about are available in the public domain.
The equity-linked saving scheme (ELSS) is the only mutual fund scheme that comes with a lock-in period of three years. This gives investors enough flexibility in terms of their financial goals. Whether short term or long term investment over a certain time frame makes it easier to plan when and how to invest.
Mutual funds across various asset classes and company shares to mitigate risk. The mutual fund gives you exposure to a basket of stocks and bonds at a very low cost. When one asset class underperforms gains from other asset classes will negate the loss. However, it is recommended not to invest in too many more than 5 as. It may get difficult to monitor the performance of all avenues.
All mutual fund houses are under the purview of the Securities and Exchange Board of India (SEBI) and the Association of mutual funds in India (AMFI). These are Both SEBI AMFI are government bodies and hence, you can consider your mutual fund investments to be as safe as bank deposits.
Ease of Tracking :
Investors might not have the time to analyze the performance of their mutual fund houses provides investors with regular statements which makes it easy to track the performance of the funds.
How do Mutual Funds Work:
This mutual fund is both an investment and an actual company. The mutual fund is a collection of investments, such as stocks, bonds, and other funds. Owned by a group of investors and managed by a professional money manager. These investment object of the mutual fund determines what types of securities it buys. The MF can focus on specific types of investments. A fund mainly in government bonds, stocks from large companies, or stock from certain countries. It may invest in a variety of investments. Because someone else manages the, you don’t have to worry about diversifying individual investments. Yourself or doing your own record keeping. That makes it easier to just buy them and forget about them. That’s not always the best strategy however your money is in someone else’s hands after all in mutual funds.
The fund manager’s compensation is based on how well the fund performs you can be assured they will work diligently to make sure the fund performs well. The mutual funds can Open-ended or closed-ended. Many people consider all mutual funds to be open-ended while putting closed-ended funds in another category. These are Open-ended means that shares are issued in the fund (or sold back to the fund) whenever anyone wants them. With closes ended funds only a certain number of shares can be issued for a particular fund. They can only be sold back to the fund when the fund itself terminates. You can also sell closed-ended funds to another investor on the secondary market. This load refers to the sales charges added to a mutual fund when you purchase it. This load charge goes to the fund salesperson as a commission and payment for their research services.
Mutual funds work
Load charges can be up to 8.5 percent of the selling price and can be figured in as a front-end load [ These meaning at you pay it when you buy the mutual fund ]. A back end load [ meaning at you pay when you sell the mutual fund ]. These many mutual funds are no-load funds. That means there is no sales fee charged and the fund is directly marketed. So you can buy it without the help of a salesperson. With the wealth of information on the Internet today in mutual funds. It is certainly easier to make smart choices yourself to save money.
Mutual Funds fall into three categories :
Equity funds: These are made up of investment of only common stock. The equity funds aim to generate high returns by investing in the share companies of different market capitalization. These can be riskier and earn more money than other risks.
Fixed income funds: The Fixed income funds are a type of investment security that pays investors fixed interest payments until its maturity date. There are made up of government and corporate securities that provide fixed returns and are usually low risk.
Balance funds: The balanced fund is another option for intermediate-term investors. These combine both stocks and bonds in the investment pool and offer a moderate to low risk. While low risk may sound good it is also accompanied by lower rates of return meaning you risk less in balanced funds.
When you buy mutual funds, you are pooling your money along with other investors. Then you put money into a mutual fund by buying units or shares of the fund. As more people invest the issues new units or shares. these investments in a mutual fund are managed by a portfolio manager. They manage the fund on a day-to-day basis. Deciding when to buy and sell investment according to the investment objectives of the fund.
5 Things to know
1. Investing with Mutual Funds :
Why investors gave the first preference in the mutual funds? This small answer is to save money to earn returns that are hopefully higher than those associated with guaranteed investments in the such as certificates of deposit. Before investing with mutual funds be sure to know your investment objective in the mutual funds. Which is the goal and time frame you have to invest in?
These reasons why most MFs usually provide returns over time than guaranteed investments is due to the risk premium rewarded to investors. The level of risk and returns depends on what the fund invests in mutual funds. These mutual funds are not guaranteed or insured by any deposit insurance corporation or any other government agency. Even if you buy through a bank and the fund carries the bank’s name. Then you can lose money investing in mutual funds.
3. Past Performance:
How a fund has performed in the past can’t tell you how it will perform in the future in mutual funds. mutual fund investors will still consider past performance in their initial evaluation before buying. These review longer periods. The mutual funds Such as 5 and 10 years and compare the performance with that of other funds in the same category. Mutual funds are also important to see how long the manager has been at the helm of the fund. The past performance can help you determine how volatile or risky the fund’s returns may be.
4.Price to Buy and Sell:
The buy mutual funds at the fund’s net asset value (NAV ) plus any sales charges. The mutual funds are redeemable you can sell your MF at the current NAV less any fees and charges for redemption.
These mutual funds have fees and expenses that reduce your investment returns.
Two ways to make money on a Mutual Funds:
1.Capital gains: These capital gains/losses arising from sales of equity shares and equity mutual funds are said to be long term in nature if they are held for more than one year from the date of investment. These you sell your mutual fund for more than you paid for it, you will have a capital gain.
2. Distributions: It was Depending on the type of fund you buy you may also receive distributions of dividends. Interest capital gains or other income the fund earns on its investments.Unlike individual companies who can choose either to retain the profit or return it to shareholders in the form of a dividend.
Where to buy mutual funds:
- Banks and trust companies
- Life insurance companies
- Credit unions and caisses populaires
- Mutual fund dealers
- Investment firms
- Mutual fund companies that sell directly to the public.
Advantages of Mutual funds:
- The mutual funds give investors the best both the worlds. The Investors’ money is managed by professional fund managers and the money is deployed in a diversified portfolio in mutual funds. It helps to reap the benefit of returns by a portfolio spread across a wide spectrum of companies with small investments.
- A mutual fund analyses the investments for investors as fund managers assisted by a team of reach analysts analyze the market daily.
- The investors can enter/ exit schemes anytime they want ( At least in open-ended schemes). They can invest in a SIP (Systematic Investment Plan), where every month, a stipulated amount automatically goes out of their savings account into a scheme of their choice.
- There may be a situation where an investor holds some shares, but cannot exit the same as there are no buyers in the market. Such a problem of illiquidity generally does not exist in case of mutual funds as the investor can redeem his units by approaching the mutual fund.
- Portfolio diversification: It enables him to hold a diversified investment portfolio even with a small amount of investment like Rs:2000/-
- Professional management: The investment management skills along with the needed research into available investment options, ensure a much better return as compared to what an investor can manage on his own.
- Reduction/Diversification of Risks: The potential losses are also shared with other investors.
- Reduction of transaction costs: The investor has the benefit of economies of scale the funds pay lesser costs because of larger volumes and it is passed on to the investors.
- Wide choice to suit risk returns profile: These investors can choose the fund based on their tolerance and expected returns.
Difference between Stocks and Mutual Funds :
|BASIS FOR COMPARISON||STOCKS||MUTUAL FUNDS|
|Meaning||Stock is the collection of shares held by an investor, representing his/her proportion of ownership in the company.||Mutual Fund implies a fund operated by the asset management company that pools money from numerous investors and invests them into a basket of assets.|
|Ownership||Shares in a company||Shares in a fund|
|Trading||Throughout the day.||Once in a day|
|Managed by||Investor||Fund manager|
|Value||Price per share||Net Asset Value|
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