You must have heard about Mutual Funds, but what are these mutual funds and how do they work? In this article, we will give you information related to Mutual Funds so that you can also invest in it in the right way.
So let us know what is Mutual Fund? About the advantages and disadvantages of Mutual Funds.
What is Mutual Fund?
Mutual Fund, a method of investment, in which a mutual fund company invests the capital deposited by various investors in the purchase of shares, equity, debt, gold, foreign securities of a company.
Mutual funds are contributed/shared capital by many types of investors, so each investor is a proportionate participant in the fund’s profit or loss, which is determined on the fund’s NAV and units.
Collectively, mutual fund investments are managed by a professional fund manager to generate the highest possible returns.
In India, the capital regulator SEBI (Securities and Exchange Board of India) monitors the AMC. AMC means asset management companies that manage these Mutual Funds.
Types of Mutual Funds – Types of Mutual Funds
Mutual funds are classified into several different categories, which include their investment characteristics and risks.
Let us know about the types of Mutual Funds, Mutual Funds are of the following types:-
In equity funds, the company invests most of the money deposited from investors in shares. These are high risk schemes, in which investors may also suffer losses. Because most of the money is stuck in the stock market.
Investing in equity funds is suitable for those who stay invested for an extended period and are comfortable with moderate to high risk.
Debt funds primarily invest in government fixed income securities such as treasury bills and bonds, or corporate deposits. Investing in debt funds is less risky than equity funds.
Debt funds are suitable for those who are risk-averse and looking for short-term investments. The basic reason for investing in debt funds is the income from interest.
As the name suggests, a hybrid fund is a mutual fund that invests its assets in two or more asset classes which include equities, debt, money market instruments, gold, overseas securities. It is also known as Balanced Fund.
Hybrid funds invest in two or more asset classes to balance the risk and maintain a specific rate of return. It is mainly invested in equity and debt
Mutual Fund Benefits & Risks – Advantages and Disadvantages of Mutual Fund
Benefits of Mutual Funds
We know that any type of investment is market-based, yet investing in mutual funds has the following advantages :
- Liquidity: It is easy for you to withdraw your money from mutual funds. You can withdraw your investment at any time of need.
- SIP Option: If you do not have a lump sum amount to invest, you can also invest through a SIP.
- Diversification: MFs invest in various asset categories and in the shares of the company to reduce the risk.
- Tax Efficiency: By investing in ELSS, you get the double benefit of saving along with relief in Tax Deduction.
- Ease of Tracking: MF houses keep on giving regular statements to the investors which makes it easy to track the performance of the fund.
- Safe Investment: All MF houses come under the purview of SEBI and AMFI. Both SEBI and AMFI are government bodies.
- Based on Goals: It helps you to achieve all your goals.
- Flexibility to Switch Funds: A good investor knows when to stay in the market, retreat or switch funds. There are many MF schemes that allow you to switch funds.
- Expert Money Management: Mutual fund companies have fund managers to choose company shares, sectors and debt papers, which are beneficial for you.
Risks of Mutual Funds
Risk in mutual funds is because mutual funds invest in a variety of financial sectors such as equities, debt, corporate bonds and government securities. Which keeps fluctuating due to many factors like supply-demand, change in interest rate, inflation.
Let us know the disadvantages of investing in mutual funds , the disadvantages of investing in MFs :-
- Market Risk: Poor market performance can be harmful for any investor. There are many factors like inflation, interest rate, which affect the market.
- Liquidity Risk: Sometimes due to lack of buyers in the market, you may be unable to capitalize on your investments when you need them the most.
- Interest Rate Risk: An increase in interest rates during the investment period can lead to a decrease in the price of securities.
- Concentration Risk: Investing a considerable amount in a particular scheme is not a good option. If you are lucky, the profit will be huge, but the loss will be high.
How to Invest in Mutual Funds?
There are many ways to invest in mutual funds, you can buy in mutual funds both off and on.
Before investing in any kind of mutual fund, do thorough research and decide which fund of AMC you want to invest in. Investing in Mutual Funds through SIP is very easy.
You can invest in Mutual Funds through Direct Investment, DP Agents and Online Process. To invest in mutual funds online, you must have a working demat account.
How to Invest Online in Mutual Funds:
Here I am telling you about how to invest online in Mutual Funds using Paisabazaar, the steps mentioned in it can be mostly the same in almost all online platform / Marketplace / Investment Solutions and also different.
Let us know how to invest online in Mutual Funds?
Step 1: You go to the website of Paisabazaar.com .
Step 2: On the website, you go to the option of ‘ Mutual Fund ‘ there.
Step 3: To create your account, choose the option of create a new account, fill all the details (Personal, Bank details, KYC From) thoroughly.
Step 4: After creating the account, you select the option of ‘Explore All Funds’.
Step 5: Choose the Mutual Fund Scheme of your choice, now you will have all the information related to that fund like NAV, Risk level, fund manager, ratings, choose any one.
Step 6: When you have selected a Mutual Fund Scheme, then confirm it with your investment type (Monthly SIP Amount or Lumpsum Amount).
Step 7: After selecting your investment type, you complete the online payment process.
Step 8: After completion of payment, AMC will allot mutual fund units to you in 4-5 working days, which will appear in your Paisabazaar Account, mutual fund company will send you complete MF scheme details on your given email.