WHAT ARE MUTUAL FUNDS

Understanding Mutual Fund in the most simplest way :- 

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Mutual Funds are subject to market risk, we all know that right ? Here the term market means stock market and other financial market and whenever we invest our money in stock market directly we have to face huge risk and then we may or may not get the reward.

Risk means risk of loosing your money | Reward means getting extra money from the money which you've invested. Now who doesn't like to make money ? But Investing directly into stock market is hard and requires a good amount of knowledge.

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Here MUTUAL FUNDS plays a great role for people who wanna make money. Mutual means group of people who mutually invest their money to make a huge sum of money called fund which will then be pooled to the AMC (Asset management company) who takes all the risk of driving everyone's money into different securities to achieve the ultimate target of making money or getting the reward. Those AMC's has big research team, fund manager and everything required to take decisions with our money. Where, when, which, how to buy/sell and What security to earn the maximum return, all the headache is handled by these companies. They don't do these things in free for this they charge Expense ratio and other fees also and that's how they also earn.

So, basically they act as our agent. Remember they do not guarantee you that yes you will get rewarded for sure it all depends upon their decisions and experience and yes the god (Market) It's a game or risk and reward. 

An Expenses ratio doent define the quality of fund a 2% exp ratio fund can be better than 1% too

The image clearly helps us to understand how mutual fund buys particular stocks, bonds and other securities from investors money and who is investor (we) the one who invests. There are different AMC's and those amc's has different type of mutual funds. Example ICICI AMC has more than 1200 Mutual funds schemes. Those Funds depends on various factors like goals and time frame.

Like every other things mutual funds also has pros and cons :-

Pros 

1. Gives your money an exposure in building economy.

2. Mutual funds helps in diversification and makes you earn a lot in long term. 

3. Money is handled by market experts and no problem for liquidity.
4. Money works for you and brings more money for you with time.

Cons

1. Money is not hundred percent safe no guarantee for reward. 

2. You pay some fees as expense ratio.

Whenever we buy stocks we get in the form of number of shares, but in Mutual funds we get units, the number of units depends upon the NAV (Net asset value) of that particular mutual fund on the day you've invested. 

Example :- You have invested Rs.500 on 15th of april in a particular mutual fund whose NAV was 13.36 on that day so you shall get 37.425 units. (Amount invested divided by nav) The NAV of the fund changes every trading day as the stock market prices also changes everyday. As the NAV increases fund becomes expensive and you earn reward & vice-versa. 

There are two ways of investing into a mutual fund.

1. The regular way where you contact a middle party and takes his help to invest in that mutual fund.The regular way is not recommended as the middle party eats up 1% of your profit too and in long run that 1% is a huge sum of money. 

2. Second way is the direct way where you decide which mutual fund you wanna invest in and you yourself invest in it through various platform like Groww, CAMs, Coin or from AMC's website. Here you're money is directly invested you just pay an expense ratio which is unavoidable. This way of investment is recommended. 

Groww is one of the best platform for direct mutual fund investment why ? Here you can select compare and know various other factors about the particular fund. Like which stock they buy pros and cons of the fund expense ratio and every other important things and yes you can also buy individual stocks and virtual gold too to diversify your portfolio.

You can click in this link which will directly take you to Groww Dashboard.

The current period is best for investment because the NAV of most mutual funds have fallen a lot due to covid-19 impact therefore NAV has fallen which means more units you'll get more units means more profit when market starts recovering.

Types of AMC's




By : Prasant shukla


COMMENT Below what more you wanna know about mutual funds !
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Desclaimer : Before investing in any mutual fund make sure you go through a deep research or else ask a financial advisor or make urself highly educated to take finance decisions. I do not owe any responsibility for any action taken by anyone through this blog. All the actions shall be done qt your own risk. 

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IMPORTANT LINKS

Open your Trading and demat account with Zedrodha India's number one broker
Open your Investment and algo account with Upstock
Open your Mutual fund investment account with the number 1 App Groww

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