A mutual fund is an open-end professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature. In simple word, Mutual fund is a fund created with the money of many people or groups, which is invested in various financial instruments by the fund manager by dividing it into pieces and using his investment management skills. Mutual funds are invested in many ways, which determine their risk and return!
In mutual funds, you can start investing through SIP with even a small amount! Mutual funds reduce the risks of common investors and provide better returns in the long term!
Q.What are the Benefits of Investing in Mutual Funds?
These are the benefits while investing in mutual fund
- Diversification: Mutual fund diversification, also known as asset allocation, is a strategy that helps to manage unsystematic risks in investment. The agenda of diversifying is to lower investors’ risks.
- Affordability: Mutual funds can be an affordable investment option since there are typically no minimum investment requirements, and you will not be charged a large commission for buying or selling funds.
- Professional Management: Mutual funds are professionally managed and offer access to a range of expertly researched investment strategies.
- Tax efficiency: Mutual funds offer tax advantages in some countries like India and you may be able to take advantage of tax benefits when reinvesting the dividends.
Everyone wants to earn good returns by investing their money in the right place. Mutual Fund may be right for those who want to keep themselves away from the risk of the stock market but want to earn more returns from FDs (fixed deposits). Before investing in mutual funds, we should know the following important points.
- Track Record of Asset Management Company: – An asset management company is a kind of fun house that manages the money of many investors like you. You’ve also heard the names of companies like this. It is very important to choose the right fund house before taking a good mutual fund scheme. For this, you can see his track record of 5, 10, 15 years. How he has given returns to investors, whether he has done any fraud with the investors, only after taking all such information, you should register in that fund house.
- Fund Manager Experience: -In mutual funds, the fund manager is a person who understands the market and business well. He knows the sentiment of market fluctuations and makes investment decisions accordingly. If you are buying a mutual fund, then you must make sure that the experience of the manager, managing that fund is sufficient. Also, look at how many years it has consistently given good returns to investors. He has managed to give good returns to investors for many consecutive years, so you can bet on it.
- Expense Ratio: – If you are investing in a particular fund of a mutual fund house, then it is very important for you to know the expense ratio. This is a kind of service fee that has to be paid by an asset management company (AMC) or mutual fund company. In other words, it is the per-unit cost of running and managing mutual funds. Each plan of mutual funds can have different ratios. You have to pay attention that the expense ratio of whichever plan you are investing in is low.
- Direct plan gives more returns: – There are two types of plans in front of the person choosing a mutual fund scheme. One is a direct plan and the other is a regular plan. The only difference between these two is that there is no agent or broker in the direct plan, so there is no commission or brokerage. This means lower cost of the fund house and ultimately lower annual costs that you need to pay for your investment. If you are taking a scheme, try to buy a direct plan.