What is mutual fund | How to buy Mutual fund | Types of mutual fund | Investment in SIP | Investing in Mutual fund

mutual fund

What is mutual fund | How to buy Mutual fund | Types of mutual fund | Investment in SIP | Investing in Mutual fund

Before we start how to invest in mutual funds let us first understand what is a mutual fund.

What is Mutual fund and why mutual funds generate more returns?
What is NAV (Net Asset Value)?  

A mutual fund is one kind of fund which is managed by professionals. they are experts in the share market and other securities like a bond, debenture, etc. this professional pool money from so many investors like us who wanted to invest in the share market and use this money to invest in the share market.

The mutual fund generates more returns as compared to other investments like saving bank account, Fixed deposit, LIC, etc. because it directly connected to the share market. and as we know sharemarket has the highest potential of giving high returns.  In mutual funds, there is the term called NAV (Net Asset Value) which is comprised of all share prices of in which your mutual fund invested in. 

For example, if you invest 1000 in the mutual fund, then your mutual fund manager will invest this 1000 in all portfolios of the mutual funds. 

NAV = Asset - Liabilities / no. of outstanding shares.

Nowadays mutual funds are a very popular tool to create wealth, of course, there are so many sources from where you can generate more wealth. investment in sip you can save a small amount of money every month or every week or every quarter or every year as per the capability of investment in a mutual fund.

Apart from this investment in sip through Mutual fund is very easy to invest. in the mutual fund, you can also invest your whole amount of money at one point of time that is called a one-time investment in a mutual fund. in this case, you don't have to invest your money monthly or weekly or so on. just invest at one time and wait for long term profit. in this case, you can generate more return but investment in a mutual fund at one time is riskier than investment in sip.

The mutual fund has so many types and subtypes. before investing in mutual fund research of your own and your financial advisor and then invest. because it fluctuates with the share market and also with your benchmark index like nifty bank nifty Sensex as so on.

So without wasting your time, let's learn about the mutual funds.

Structure of funds

1.Open-ended funds
  • In Open-ended funds, one can buy the funds anytime. 
  • Liquidity provided by mutual funds house. 
  • One can buy these funds on NAV (Net Asset Value) 
  • We can buy these funds units from that particular Mutual funds.
  • Intraday trading is not possible. 
2.Close-ended funds
  • Close-ended funds are generally traded in stock exchange like shares.
  • One can buy these funds only at the time when it issue. 
  • Liquidity through a stock exchange. 
  • One can buy these funds on the stock exchange price. It has also NAV, but it can not buy on NAV. One has to purchase these funds at a current price just like shares.
  • We can buy these funds from the stock exchange.
  • Intraday trading is possible. 
Types of mutual funds

1. Equity funds 
  • In these funds, the investor's money is invested in the stock market (share market)
  • Profit and loss are determined by increasing or decreasing the price of shares in which the equity funds are invested. 
  • Growth is fast.
  • The risk of losing money is higher.

2. Debt fund 
  • These funds are invested in securities and bonds like Fixed Maturity Plan, Gift fund, Liquid fund, short term or long term bond. 
  • The risk of losing money is minimal.
3. Hybrid funds (Balanced fund)
  • These funds are a mix of equity and bonds 
  • The ratio can be fixed or variable.
  • Part of the money is invested in equity and part of the money is invested in debt.

4. Tax saving funds (ELSS or Equity Linked Saving Scheme)
  • These funds are more suitable for taxpayers because it saves taxes. 
  • lock-in period 3 years i.e. cannot sell before completing 3 years.
  • These funds are recommended to the persons who want to invest money for the long term and for the salaried persons.

5. Pension funds 
  • This is for the persons who are willing to secure the future of himself or his/her children or it can take care of any situation like medical emergency and children's wedding etc.

6. Gift funds 
  • Like the name, these funds are for the gift someone or your loved one.
  • One can buy this mutual fund to secure the future of their loved one.
How to buy mutual funds

A person can buy a mutual fund in two way, first is Lump sum Method and the second is SIP(Systematic Investment Plan)

Lump sum Method:- 
In this method, any lump sum amount is invested in the mutual fund for a particular period. i.e. Rs.100000 for a period of 5 years.

SIP (Systematic Investment Plan):-  
In this method, one can invest money periodically like 1000 per month, 500 per month, 5000 per month, etc. you can increase your SIP amount as you want in any year. 

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