What is a Mutual Fund?
If we rank the investments based on returns, undoubtedly Investment in capital markets would come in the top three of the list. The world considers India as the next growth story. Major MNCs are investing in India to get benefitted from that growth. But what about the common people like us. Is it possible for us to take some share in that growth? I would say yes. How? By the simple act of investing in the capital markets. But when it comes to the capital market, there are still some people who believe it to be a fraud. A sure shot way to lose money. Then we have people who want to invest in stock market., but confronts the following issues:
1. Neither they understand how investing in capital market works nor have time to learn it.
2. Everyone can’t afford to hire a competent professional.
So does that mean there is no way? No, there is always a way. You must have come across this line – ‘Mutual Funds sahi hai’.
A mutual fund is an investment vehicle, wherein investors, who share a common financial objective, pool their financial resources to invest in various securities such as shares, debentures, bonds, etc. This pool of financial resources is managed by the fund manager who charges fees for his/her services. In simple words, you, along with other investors, give your savings to another person, an expert, who then invests the collected funds into various securities.
A Mutual fund investor becomes the co-owner of the assets of Mutual fund along with the other investors. On investment, he gets units of Mutual funds, just like we get shares when we invest in a company.
Number of Mutual fund investors in India
According to the Association of Mutual Funds in India, the total number of mutual fund accounts stood at 9.04 crore.
How does a Mutual Fund work?
The funds pooled from the investors is invested in various securities by the fund manager. What kind of securities? Well, it depends on the specific investment objectives of that particular Mutual Fund scheme. Now, if the value of investments goes up, so the value of units of Mutual Fund & vice-versa. Also, Mutual Funds generate income from its investments which is distributed to the unit holders in the form of dividends in the proportion of the units held by them. For administering the fund & managing the portfolio, the manager charges fees based on the value of the fund’s assets.
Who can invest in Mutual Fund?
Anybody with the savings of as little as a few thousand rupees can invest in mutual funds by buying units of a particular mutual fund scheme, selected keeping in mind his financial objectives. You can either invest a lump sum amount or you can have SIP.
Should we invest in Mutual Funds?
Yes, we think you should invest in Mutual funds, especially if you are a starter in the stock market. Through investment in Mutual funds, you will get co-ownership in a diversified professionally managed basket of securities at a relatively low cost. Then you can gradually shift towards managing your portfolio once you start understanding how a stock market functions. But it is important to remember, mutual funds are subject to market risk. It is not a magic wand to generate money. Mutual Fund returns get affected by several factors.