Mutual funds refer to the pool of finances collected from various investors. This money is stored in the form of assets for the accomplishment of predetermined financial objectives. In simple terms, money collected from many investors is reinvested to earn profits. Later, these profits are distributed amongst the investors in the form of dividend.
How many of us have thought of investing in mutual funds? Everyone has thought at certain point of time. But a friend of yours must have said that it is a complicated process and a layman must not fall into it. A relative of yours must have threatened you with all the risks involved in mutual funds. The advertisements must have illustrated the benefits of mutual fund investment along with a rigid disclaimer to read the offer document carefully. And you stopped of thinking about investing in mutual funds!
If you really think of investment, then you must definitely try mutual funds. But before that, you need to go through the meaning, terms, conditions and formalities involved in mutual fund investing.
Functioning of mutual funds
Let us describe the working of mutual funds. You provide your savings to the mutual fund trust known as Asset Management Company. It collects such savings from many investors and holds the money in assets and various classes. For this purpose, you need to pay certain fees to the asset management company. The mutual fund formulates various schemes with a predetermined goal. If you share the same goals in the scheme, then you may select that is appropriate for you. This scheme earns profits over a period of time. The asset management company distributes these profits to you and the other investors in the form of dividends. Hence, the name asset management company is assigned to it. Every scheme of a mutual fund is managed by a team of professionals and their Fund Manager. A Fund Manager can look after one or more schemes.
Investments done by mutual funds
Mutual funds invest the money in bonds, debentures, equities and so on. These days, you can see mutual fund investments in gold asset class too.
Why to invest in mutual funds?
We have explained already why mutual funds are not that complicated for a layman to understand. Hence, a common man must attempt to make investment in mutual fund schemes. He must get well-versed with the technical terms such as offer document, Net Asset Value, different types of mutual fund schemes like open-ended, closed-ended, debt funds, equity funds and so on.
The risks involved in mutual funds are evaluated by specialized finance managers. Hence, you need not worry about it. Being a small investor, you can diversify your investments in different market products. Though mutual funds are subject to market risks, you can lessen the risk by choosing the best mutual fund scheme.
Conclusively, you can surely invest in mutual fund schemes after proper evaluation of the types and the degree of risks involved.
Recommended Read :
- Methods to Select the Best Mutual Funds
- What are Mutual Funds?
- Types of Mutual Funds in India
- 5 Types of Popular Mutual Funds in India
- Understanding Mutual Funds Returns?
- Fixed Deposit Vs Mutual Fund
- Real Estate Vs Mutual Fund
- SIP Vs Mutual Fund
- Mutual Fund Investment Strategy
- Mutual Funds in India
- What is Net Asset Value (NAV)?
- Open Ended Mutual Fund Scheme
- Close Ended Mutual Fund Scheme
- What are Debt Funds?
As far as I know, mutual funds are are much safer than other financial products. Once you invest in a mutual fund scheme, one need not worry about the market fluctuations, the fund mangers will always help you and suggest you with the best stocks to invest in. In fact it is always a good option to invest in mutual funds if you are a new-comer in the financial world as there are professionals to guide you.