Mutual Funds: All you need to Know

Mutual funds are buzzwords that most of us are familiar with. These buzzwords will most likely appear thousands of times in social media or broadcast advertisements.

In the ads, you have seen that they are explaining how a small investment of 500–1000 per month can give higher returns in lakhs for a specific period of time.

Hearing this makes you wonder if everything you’ve heard is real. So, just to be sure, everything you’ve read or heard about mutual funds is mainly correct, and yes, you can turn a set amount each month into lakhs in 1-2 years by investing a certain amount each month.

For you, it may not be easy to digest because this is new to you, but for investors, it is the way to make higher returns. Over the last decade, over $2 trillion has been invested in mutual funds alone around the world.
All of this will pique your interest in learning more about mutual funds. So for you guys, we’ve brought this blog to let you know all about mutual funds.

In this blog, we will talk about mutual funds. What kind of investment is made in mutual funds? There may be more things in mutual funds than in the share market.

So without wasting your time, let’s get started.

What are Mutual Funds?

Mutual funds are investments where many people pool their money together to purchase securities, market shares, bonds and other assets. This type of investment is most commonly used in the United States, Canada, and India, although similar structures are also used elsewhere.

The pool money that is come after collection goes into the hands of the fund manager.

Who is the fund manager?

In the world of mutual funds, a fund manager is a person who makes and manages investment funds. The job requires specialised knowledge of the market, including investment styles, valuation, and other factors that affect the performance of an investment.

An experienced fund manager can make the best investments possible and can help the portfolio grow. Many fund managers specialise in a single type of fund or several types. Having a wide range of experience in fund management can give an individual the edge they need to succeed.

Who can invest in mutual funds?

Before investing in mutual funds, you must have a bank account. If you don’t have a bank account, you can’t invest in mutual funds unless you can prove that you have an open checking account.

Most mutual fund houses require that you submit a physical or digital copy of a cancelled cheque leaf with a valid IFSC and MICR code. This is to ensure that your investment is not stolen and isn’t misused by others.

How to invest in mutual funds?

Before investing in mutual funds, you need to define your investment objectives and the time horizon of your goals. These can be anything from buying a house to funding your child’s education to saving for retirement.

It is also important to know how long you want to build your wealth. Knowing these goals will help you select mutual funds that will suit your needs.

Once you’ve identified your goals, the next step is to choose the right strategy for your needs. The best strategy is to invest in a mutual fund that matches your objectives. After determining your objectives, choose a mutual fund that suits your investment style.

Mutual funds Vs Share market

The major difference between mutual funds and the stock market is that mutual funds are run according to the fund’s manager. The fund’s manager takes all decisions on investment, whereas in the share market you are all free to invest in any stock or asset.
Another major difference between mutual funds and shares is their cost. While mutual funds can help you avoid taxes, they can also come with high expenses. A mutual fund’s expenses are typically around 2.5 per cent, while the stock market’s annual fees are only 1%.
In addition, the stock market is not tax-deductible. As such, the mutual fund is less expensive than the stock market. This is an important factor to consider if you are considering investing in mutual funds.
One more difference between stocks and mutual funds is that stocks provide immediate returns as stockholders own a part of the company and can make money from dividends and sell their stocks.
While in mutual funds, your investment is done in SIPs or one-time investments. Here you also do not get any dividends. Instead, that money that comes through dividends is again invested in stock by the fund’s manager.

Advantages of mutual funds

The first major benefit of mutual funds is that they provide immediate liquidity. Compared to stock investments, mutual funds provide investors with greater liquidity and less risk.
For example, the fund can buy and sell securities and can buy and sell them quickly without incurring a large fee. And if the fund is diversified, it reduces volatility.
The low cost of mutual funds is another advantage. A mutual fund’s fee is often lower than other investing options, allowing you to accumulate money over time.
Mutual funds are an excellent choice for retirement plans. They don’t charge load fees but have low turnover – a great benefit if you need to sell quickly. Moreover, mutual funds are highly liquid and can be sold easily.
Mutual funds allow investors to choose funds based on their investment objectives and desired returns. For example, you can choose between long-term funds and short-term funds. This allows you to invest more money and avoid losing money during a short period of time.

Disadvantages of mutual funds

There are some advantages of mutual funds, but they have a few downsides as well. Let see them one by one.

The first disadvantage of mutual funds is that they tend to be high on expenses. This is because they have to keep up with their benchmark and don’t buy or sell as frequently.
One disadvantage of mutual funds is that they can be hard to customize. This means you’re stuck with whatever the fund manager chooses. You can’t choose to be in the long or short position of a specific stock.
Mutual funds are also difficult to track. They require a large amount of time to manage
It’s important to keep in mind that there are advantages and disadvantages of mutual funds, but the benefits of mutual funds outweigh these drawbacks.

Conclusion

Although mutual funds come with some disadvantages, they’re a good choice for investors who are not familiar with stock markets. Despite their disadvantages, they do offer great returns for the average investor. For these reasons, they are a great investment option for most people.

So, in this blog, we have covered everything a person needs to know about mutual funds before investing in them.
Still, if you find any difficulty with mutual funds, you can comment on your difficulty. We will try to explain it deeply.