What are Mutual Funds?
A Mutual Fund is a trust or a company that collects or “pools-in” money from many customers who are called “Investors”. The company has a designated professional “Fund-Manager” who manages the pooled-in money and invests the same in equities, stocks, bonds, money market instruments and or other securities in order to make a profit. [1]
The combined holdings of the mutual fund are known as its “Portfolio”.
Investors, like you, buy shares in mutual funds and each share represents an investor’s part ownership in the fund and the income it generates. Basically, any income or gains generated from this collective investment is distributed in proportion among the investors after deducting applicable expenses and levies, by calculating a scheme's “Net Asset Value” or NAV.
The common myth is that Mutual Funds are only for experts. But this is actually false and in-fact Mutual Funds are meant for common investors who lack the knowledge or skill set to invest in the securities market. Mutual Funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI) which serves to protect the interests of Investors.
Why should you invest in Mutual Funds?
Mutual Funds are one of the easiest and least stressful ways to invest in the market [1] because it offers many helpful features such as -
Professional Management – Fund-managers do the research for you, they select the securities and monitor the performance.
Affordability – This method is ideal for investors who lack large sums of money and have a relatively low amount for the initial investment or subsequent purchases.
Diversification – Ever heard of the saying “Don’t put all your eggs in one basket”? Mutual funds typically invest in a wide range of industries and companies which helps in reducing your risk factors even if any company fails.
Liquidity – Investors can easily redeem their shares at any time from the company, for the current “Net Asset Value” of the security plus any redemption fee.
Multiple Product Choices – Investors in India have many choices of products for investment across the financial spectrum. Each of the products, in turn, have specific goals like post-retirement expenses, money for children’s education or marriage, house purchase, etc.
Buying Mutual Funds in India
There are different ways to make investments in Mutual Funds in India:
Offline Investment directly with the fund House – Visit the nearest branch office of the fund house along with certain required documents and fill out the application form.
Offline Investment through a broker – Mutual Fund brokers help investors through the entire process of investment, including features of various schemes, documents needed, guidance on which scheme to invest in, etc. for a chargeable fee.
Online through the official website – Follow the instructions provided on the official site of the fund house to submit an online application and complete the KYC process online as well. Aadhar and Pan numbers are required.
Through an App – Many fund houses allow an investor to make an investment using an App on the mobile device.
With this, we hope that this quick beginners guide will help you to foray into this exciting world of mutual funds. We will do a Part 2 for this article delving into some more details of investing in Mutual Funds. Happy Investing!
