Mutual fund is a trust which is established to raise money from lot of
small and big investors this money is then invested in securities like stocks ,
bonds and debt . According to Global Financial Literacy Excellence Center
research 76 % of indians lack financial knowledge and in remaining 24% are
those who generally lack expertise in market , these all types investor prefer
mutual funds , bonds and debt funds to invest their funds .
All mutual funds are regulated and supervised by SEBI (Securities and
Exchange Board of India). Every mutual fund should be registered as Asset
management company and approved by SEBI and they should enter into agreement
with trusties of mutual funds so that they can raise money from investors and
allocate them their units .
Advantages mutual funds:
Risks involve in mutual funds:
Stock market risk:
Mutual funds creates a pool and invest in various sectors or company .
investors enjoys this diversification through mutual fund with very less
amount . And even if one company gets collapsed the losses are covered by
other which are performing great.
Mutual funds are managed by an teams experts which are highly
skilled and have good experience.
it means how fast your money get back to you after it has been sold .
there is more liqudity in open ended funds over close ended funds.
It is govern by SEBI regulations , all mutual funds have to
follow it and provide details of their investment time to time.
Money invested in equity mutual funds have risk volatility (ups and down) of
When mutual funds fails to pay promised interest in specially
in debt funds
when mutual funds gives returns less than inflation rates
Systematic Investment Plan (SIP):
This plan allows you to invest even small
amount regularly like weekly or monthly basis in your mutual fund scheme.
Here investor invests his significant amount in mutual
fund at once
How SIP is better than Lumpsum Investment:
Can start with low amount : You can start SIP for min 500 rs but in lumpsum
investment you need min 1000 rs. (depending on the fund)
Average cost : when you invest regularly your cost of units are average out.
Compounding : In SIP dividend or interest paid by the mutual fund is used again
for buying more units .Hence Compounding helps to get higher returns
Discipline : It helps to create a habit of saving
Things to consider while choosing mutual funds:
Identify your goals:
Depending on your goal and time period you can choose
the type of fund, purchasing a car can be goal or retirement plan or tax saving.
equity mutual funds are volitile , ups and down can be seen in short
term but in long run it may provide you much higher returns.whlie on other hand
debt funds are more stable.
Portfolio for equity mutual fund:
you should consider at stocks in which fund
is investing that are they overpriced or undervalued , investing in blue chips
or midcaps or smallcaps.
How much fees are they charging for manging your funds.
Entering and exiting the fund the fees charged by the fund house is
known exit load.
Direct plan vs Regular:
Direct plans gets higher return than regular because it
is sold directy by amc not any broker so no commission is cut.