What is Mutual Fund?

A mutual fund is an investment instrument that is managed by professionals. It collects money from investors and invests on their behalf.

Asset management companies (AMCs) handle mutual funds. These fund managers pool money from shareholders, then invest it in various instruments including equities and bonds. As an investor, you put your money in financial assets like stocks and bonds. You can do so by either buying them directly or using investment vehicles like mutual funds.

Why choose mutual funds?

Advantages of a Mutual Fund

How to choose a mutual fund

How mutual funds work

A mutual fund pools money from investors with a common investment objective. It then invests the money in various asset classes based on the scheme’s objectives.

As an investor, you put your money in financial assets like stocks and bonds. You can either buy them directly or use investment instruments like mutual funds. Mutual funds have certain advantages over direct investments.

Mutual fund as an investment option

A mutual fund is an investment vehicle that pools money from investors with a common investment objective. It then invests the money in various asset classes like equities and bonds based on the scheme’s objectives. An asset management company (AMC) makes these investments on behalf of the investors. The team that manages a mutual fund picks the stocks which investors’ money will be put into based on clearly defined investment objectives.

Factors affecting mutual funds

How you gain from investing in mutual funds

Different Types of Mutual Funds

Mutual Funds Based On Fund Scheme -

Mutual Funds Based On Assets Invested In

MUTUAL FUNDS BASED ON INVESTMENT OBJECTIVE :

Every investor has a different reason for investing in financial instruments. Some do so for making profits and increasing wealth, while some others do so for a regular secondary source of income. Some others invest in mutual funds for a bit of both. Keeping these requirements in mind, there are three key kinds of mutual funds based on the investment objective.

What Are Hedge Funds

While reading up about mutual funds, you may hear about hedge funds. They are quite similar to mutual funds as they are an investment vehicle too. They too pool money from investors, and then invest on their behalf in different securities. That’s where their similarities end.

Mutual Funds vs. Hedge Funds

What Is a Systematic Investment Plan

Sometimes, we may wish to invest a big some of amount, but won’t have the entire sum at once. A systematic investment plan (SIP) comes handy in such a situation. It helps you spread your investment over time through fixed payments either on a monthly or quarterly basis. This also helps inject discipline into your investment habit, as many who wish to invest regularly forget to do so. Thus, you may end up spending more than you should, and not investing enough. SIPs help you avoid this.

Under SIP, you automate your monthly mutual fund investment activities. You, thus, invest small sums at regular intervals to buy mutual fund units. Many prefer an SIP over investing in lump sum in mutual funds. This is because SIP offers some benefits that a lump sum investment doesn’t.

What Is Systematic Transfer Plan

An SIP helps you enter a mutual fund investment. But, what if you want to switch to another scheme within a fund family after you have invested in it? The STP or Systematic Transfer Plan may come handy here.

When you opt for STP, also called the Systematic Switch Plan, you allow the mutual fund to transfer a certain amount of money or units to another scheme periodically. Thus, your mutual fund portfolio will regularly be rebalanced.

What Is Systematic Withdrawal Plan

A Systematic Withdrawal Plan or SWP is for withdrawal what an SIP is for investment. It allows an investor to withdraw a fixed amount of money or units from your fund portfolio at regular intervals. This would come handy for those wishing for a regular source of income. The key requirement is that you have a sizeable portfolio of funds. Without that, you would not be able to withdraw any funds.

An SWP comes handy when you are unsure about the correct time to exit investments. You thus get your money irrespective of market conditions. So, when the market is up, you sell less number of units for the fixed amount, and when the market is down, you sell more units. Another key advantage of an SWP is it spreads your tax liabilities across time too.

Mutual Funds Terms & Concepts

NET ASSET VALUE:

This is perhaps the most important term to know with respect to mutual funds. Net Asset Value (NAV) is important to understand the performance of a particular scheme of a mutual fund. As an investor, when you put in invest in a mutual fund, you will be issued units. You will then become a unit-holder. This is akin to a shareholding buying stocks.

Mutual funds invest the money collected from the investors in the securities markets. Since market value of securities changes every day, NAV of a scheme also varies on day-to-day basis. NAV is calculated by dividing the total net assets by the total number of units issued. Total net assets are the market value of all the assets a mutual fund holds, less any liabilities, as of a certain date.

ASSETS UNDER MANAGEMENT (AUM):

A mutual fund pools money from investors and uses this money to buy assets like stocks, bonds and other securities. The total value of the assets a fund buys is called the assets under management (AUM).

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