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Basics of Mutual Funds
Mutual funds are there from long term but recently we have seen a significant growth in number of new funds. It is because now more and more people are opting for Mutual Funds as part of their portfolio. And because of their nature of providing return in a safer way, they are becoming even more popular. Currently, there are many thousands of funds available in the market and choosing the right fund can be real daunting task even for any experienced investor. Then what about those who are there just for convenient investment and don't want to have the hassle of understanding fundamental of stocks or don't want to research extensively in stock market and hence looking upon mutual funds. Here, certainly mutual funds are safer bet for them but one should understand that there is no investment where there is no risk, same applies to MFs(mutual funds). But if one tries to follow simple guidelines then investment in mutual funds can get real simple.
Before going into details, I must explain little about Mutual funds here.
What are Mutual Funds
In simple explanation, they are basically funds those are invested by fund management companies in various kind of investment which includes stocks, bonds, real state and more. However, generally they are invested in stocks and bonds. To explain further, the mutual funds act as an intermediate for the group of investors to pool their money together in order to get profits at larger.
So, when someone invest in mutual funds, he actually buys units of mutual funds those are managed by fund manager. The fund manager are those people or entity which invest your funds on the basis of market research and their expertise in the field of investment. So when you buy an unit, you become unit holder that fund. Now you are liable to get profit on that unit of fund is in profit and sometimes unit price get lower than buying price if fund is not performing well.
Still, investing in Mutual funds have various advantage and the biggest one is diversification. Diversification is way by which risk is minimized and returns are maximized.By not investing in single stock or security but investing your money in various kind of stock, category of investments, mutual funds diversity your investment and thus making it safer alternative of investment.
Classification of Mutual Funds
On broad, mutual funds can be classified into following :
» Equity Funds:
These are those funds in which their majority of holdings are in form of equities, the equity funds can be of various types depending upon the equity they holds. Generally these funds have more risk than other funds but chances of yielding higher returns are there too.
» Debt Funds:
These kind of funds facilitate regular income with safer investments by investing into debts papers issued by Government authorities, private companies , banks, financial institution etc.
» Balanced Funds:
As from the name, these funds comprises of both equity funds and debt funds. Thus giving best of both the funds. This way it promises regular income through debts papers and growth / liquidity through equity investments.
Hopefully you are now ready to know more about Mutual Fund investment after reading the basic introduction. On next page we will discuss little about your ability and your need to invest in mutual funds. Do you really need to invest and if yes, how much safe it will be ?
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