Mutual Fund

A mutual fund is a pool of money collected from several investors, which is used to buy stocks and bonds. A professional fund manager invests and manages this money, as per the objective of the scheme.   

Let us try to understand this with the help of an example. When you visit your favourite mithai shop, you may have noticed that the mithaiwala prepares the mithai in a large tray. From this, he cuts out the pieces, as required, for those who want to purchase the mithai. As mentioned earlier, a mutual fund comprises of several stocks and bonds. A share of the mutual fund is known as a unit. So, when you invest in a mutual fund, you purchase units of that fund. In our example, a piece of the mithai can be considered as a unit. The taste and the content of one piece is exactly the same as another one, from the same tray. In other words, you have now invested in that basket of stock and bonds held by that fund.  The market value of each unit is represented by NAV, which stands for Net Asset Value.

Mutual Funds have become increasingly popular as an investment vehicle. Let us take a look at some of its key benefits.

Diversification.  Investing in the shares of different companies belonging to the different sectors, and also in other assets such as bonds, gold and cash, which helps in reducing the overall risk.  Even if certain share prices come down and a few sectors underperform, the overall portfolio is not impacted in a very big way.

Professional Management. A person wanting to invest in shares, has to first invest his time, energy and money in learning and understanding various aspects of equity investments. If you are unable to do so, you have a choice of letting a professional fund manager and his team handle your investment. They conduct thorough research and analysis of the investment, thus enabling you to reap the rewards of investing in equity, at a low cost.

Ease of transacting. It is easy to purchase, with hassle free process requiring minimum paperwork. You can track and transact online, at your convenience.

Liquidity.  You have an easy access to your funds, that is, you can move in and out of the schemes. However, we urge you to stay invested over a period of time, to benefit from compounding.

Variety of Mutual Fund schemes. There is an array of mutual fund schemes available from pure equity schemes to pure fixed income schemes. Also, there are hybrid schemes that are a combination of both in varying proportions. There are schemes that specifically provide solutions for retirement and children’s education. You need to choose carefully based on your risk appetite and goal. We can assist you in doing so.