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Introduction

  • Mutual Funds are one of the best vehicles for people who don't have either the   expertise or the time to take care of their own investments.
  • Mutual Funds are a vehicle to mobilize moneys from investors, to invest in   different markets and securities, in line with the investment objectives of the fund   and agreed upon by the investor.
  • A Mutual Fund is not an alternative investment option to shares or bonds; rather   it pools the savings of several investors and invests this money in shares, bonds,   money market instruments and other types of securities.

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The Mutual Fund Concept

The concept of a Mutual Fund works on pooling resources with one common objective in mind. In other words, a Mutual Fund is made up of money that is pooled together by a large number of investors. Their money is given to a professional (referred as fund manager) to invest in a basket of stocks and/or other financial instruments such as bonds / commodities. The objective of every Mutual Fund scheme is clearly defined and explicitly mentioned by a Mutual Fund company, i.e. Asset Management Company (AMC). In simple words, one can think of a Mutual Fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns units, which represents a portion of the holding of the fund, based on the amount invested by the respective investor.

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Mutual Fund: Saving In A New Avatar

Every Mutual Fund is managed by a fund manager, who, using his investment management skills and necessary research work, is capable of providing better returns than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own. In short, Mutual Funds are the new way of saving.

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Units: The Small But Powerful Tool

A unit, according to the broader definition, is a quantity generally accepted as a standard for exchange. Let's understand with an example, let's assume a box of chocolates costs Rs. 40. A box consists of one dozen chocolates. Four friends decide to have those chocolates, but they have only Rs. 10 each with them. And the shopkeeper only sells by the box. Thus in other words 4 friends pool in Rs. 10 each for buying one dozen chocolates. According to their contribution they will receive 3 chocolates each. Let's consider one chocolate as one unit, as 12 chocolates cost Rs. 40, thus the price of one unit (chocolate) is Rs. 3.33.

Each friend contributed Rs. 10, thus he received 3 chocolates i.e. 3 units. Similarly, in Mutual Funds every investor receives number of units as per the amount he / she invests. Thus in other words every investor in the Mutual Fund is a part owner of the larger pie which is collectively owned by all the unit holders.

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The Benefits Of Mutual Fund Investment

  • PORTFOLIO DIVERSIFICATION
  • LIQUIDITY
  • LESS RISK
  • LOW TRANSACTION COST
  • PROFESSIONAL MANAGEMENT
  • CHOICE OF SCHEMES
  • TRANSPARENCY & SAFETY
  • FLEXIBILITY

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Types Of Mutual Fund Investment

LIQUID MUTUAL FUNDS:

Liquid Mutual Funds are the least risky and would give returns somewhat higher than a savings account. These funds invest in a low risk investment avenue.

DEBT MUTUAL FUNDS:

Debt Funds are low risk funds. Their aim is to generate steady returns while preserving your capital; a feature that helps bring stability to your investment portfolio. Debt Mutual Funds carry a moderate risk. Thus, investing in Debt Mutual Funds would be ideal if you are looking at a potentially higher return than liquid funds over a medium-term time horizon.

EQUITY MUTUAL FUNDS:

Equity Funds are considered to be riskier than other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking for wealth creation through capital appreciation should invest in an Equity Fund with a long-term time horizon. And history shows that equity as an investment has outperformed all other investment classes.

HYBRID MUTUAL FUNDS:

Hybrid Funds are those funds whose portfolio includes a blend of equities, debts and money market securities. These kinds of funds would be less risky than a 100% Equity Fund due to the safety net which is provided by the Debt Fund component which is also a part of these types of Mutual Funds.

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The Power Of Long-Term Perspective

The concept of long-term investing is often compared to a snowball – it keeps growing as it rolls. Similarly, however small the investment, your money over a period of time attracts more money & grows. This effect is also known as the power of compounding. A small amount of Rs. 1000 invested every month at an interest rate of 8% would yield very good returns. In fact, the growth of small contributions over a long period of time would be able to take care of your future needs comfortably.

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Starting Early Pays

Staying invested for a long term is important, but in order to maximize the end return, it's crucial you start early. More the time period, better the returns.

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How To Invest

All this knowledge would be wasted if you do not know where and how to invest. Before that what's important is how much does one invest? Every person might have different goals and responsibilities to fulfill in life, thus how much to invest would differ from individual to individual. Thus the question of 'How much to buy?', should not arise. The important question to ask is 'How to buy?'

First of all everybody needs to define their financial goals very clearly which is also called goal planning, then depending on the goals and the risk you can take, identify and then evaluate the Mutual Funds. You could either buy them online or offline. We are providing an online platform for investing in Mutual Funds through our website and this can be done only if you have a folio number of particular AMC. Or else you could email / SMS / call us wherein you will be required to fill in the form and then submit the same along with relevant documents. We would help you to do the same. Once the Mutual Fund Company accepts your form and your payments are cleared, you are set to achieve your goals through the Mutual Fund route.

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