Mutual Funds were Created to Make Investing Easy, so Consumers Wouldn’t have to be Burdened with Picking Individual Stocks
– Scott D. Cook
Mutual funds might seem highly complicated in the beginning, and investing in them might also feel that way. Understanding how mutual funds work is the first step towards your investment journey.
How do Mutual Funds Work?
Mutual funds are formed through an asset management company pooling in investments from individuals and investors with a common objective of investment. Further, a fund manager manages these pooled investments by investing in capital assets that generate the maximum returns for investors.
Fund houses and platforms charge an expense ratio that is the annual maintenance fee to manage investments. Investors investing in mutual funds make profits through regular dividends and capital gains. It is left up to them whether they want to reinvest their money or earn a steady income through dividends.
Mutual funds do offer their investors a great way to diversify their holdings instantaneously. Unlike stocks, investors are enabled to put in a small amount of money into the funds and access a diversified pool of investment options on the table for them. You can also buy units in mutual funds, and invest in over 20 to 30 varied securities.
Why Mutual Funds?
It would be a question that would pop up in the head of any investor. One main reason why you should choose mutual funds is that it is a paperless and straightforward procedure. Investors can monitor the market and make investments according to their requirements.
The Benefits of Investing in Mutual Funds:
It is Convenient –
Investing through mutual funds is the most paperless and straightforward process. Investors are also allowed to monitor their entire market and make investments that match their requirements and objectives.
Lower Initial Investments –
You can diversify your mutual fund portfolio through investments like Groww Mutual Funds’ they have investments that begin at as low as ₹500. In mutual funds, you are also driven by the ability to invest a lump sum amount or systematic investment plans [SIP].
It is Tax-Saving –
Section 80C provides deductions on several financial instruments, and mutual funds are also one of them. That is why mutual funds have become a popular tax-saving option for Indians in recent years, along with their high returns.
Along with all of these benefits mutual funds are also the sole giver when it comes to the advanced portfolio, dividend reinvestment, risk reduction, convenience, and pricing.
It Aligns with Professional Fund Management Perks –
In mutual funds, your money is always managed by a professional fund manager. These fund managers are also backed up by a team of expert researchers. These fund managers will have direct access to your financial environment and help adjust your mutual fund portfolio accordingly. Expert advice always works as an added advantage in order to manage finances.
Know the Different Types of Mutual Funds:
Mutual funds are classified based on several attributes. These attributes include investment, objective, structure, and nature of schemes. According to these aspects, every mutual fund can be chosen accordingly to suit your requirements.
How did mutual funds become so important?
Mutual funds are created as the basket of investment. It is the source of investment in financial instruments such as stocks, bonds with defined investment objectives. Investing in these mutual funds allows an investor to gain access to assets like equities, bonds, fixed incomes securities, commodities, and even bullion.
What are the Drawbacks of Mutual Funds?
Everything has its own sets of limitations and demerits. Mutual funds are said to cling to the very things that lead to underperformance. It means they are actively managed by a team of professionals. Which might be deemed to be the drawback also turns out to the best advantage for any investor. Investors have the requirements of consistent professional support on management and funds.
Here are some of the most moved around mutual funds that you can look up:
- Growth or Equity Schemes
- Debt Funds
- Tax Saving Funds
- Exchange-Traded Funds
- Close-ended schemes
Let’s wait no more and Jump on ‘How to Invest in Mutual Funds?’
Step 1:
Sign in or log in to a trusted mutual fund application, and create an investment account.
Step 2:
Enter all of the details required. When it is a trusted platform, you can go ahead without the concerns of your information being misused.
Step 3:
Never miss out on getting your KYC done. The whole process can only be completed within 5 minutes online. You do not need to do anything the manual way or dread yourself with places to go.
Step 4:
In renowned platforms, you can swift through a wide range of mutual funds and brands to know which one would suit you the best. Your final move would be to invest in the right mutual fund.
Important things to know while you invest in mutual funds:
Understand key aspects before you start your mutual journey. The three main things you need to keep in mind as a beginner would be to know the taxes on your mutual funds, the exit load while you withdraw money from mutual funds, and the expense ratios of your funds.
Learn the Jargons. There are some frequently used phrases and terms in mutual funds that you need to know before you can set foot on the platform. For instance, terminologies such as 80C, AMC, Annualized returns, crisis, credit ratings, and the list can go on.
Now you are all set to start your mutual fund’s investments!
Conclusion:
Mutual funds are also associated with a few costs that you might want to take a sneak-peek into. Some of these costs include net asset value, administration fee, and loads. If you are not very familiar with the charges you deviate from the profits on your investments. Now you know the benefits, types of mutual funds, costs, and process of investing in mutual funds. Start investing and see wealth grow.
