Mutual Funds Investment: You must have also seen many articles and videos on mutual funds. But what exactly is a mutual fund, how does it work and how can one make profits by investing in them? Today we will answer all these questions in this article, so you are requested to read till the end of this article.
Contents
what is mutual fund investment
A mutual fund is a fund in which there are many investors, be it me, you or anyone else. Fund managers work to invest your money and this amount can be invested either in the stock market, in bonds, in gold or in other securities. These fund managers have a deep hold on the stock market, the country’s economy and the international market, and the aim of these fund managers is to give good returns or profits on the invested amount with minimum risk.
how many types of mutual funds
There are two types of mutual funds
- Open End
- Close End
open ended mutual fund
Open end means that you can invest and withdraw money anytime.
close ended mutual fund
Closed end funds are those funds in which there is a time limit for investment and it can be withdrawn only after a certain period or maturity. And these mutual funds can be put in different categories.
And these mutual funds can be put in different categories like small cap, in small cap the fund managers will invest your money in those companies which are small but these companies have more chances of growth. In mid cap, your money is of mid level. It is invested in companies in which the risk and return come only at mid level. Large cap companies are such big companies in which both the level of risk and return are low and in sector funds, your money is invested in companies related to a particular sector. For example, it could be companies associated with the firm or it could also be a company related to the IT sector.
what is lump sum and sip in mutual funds
You can invest your money either in SIP or lump sum. SIP is a systematic investment plan in which you invest an amount every month and lump sum means investing the amount in one go. In return for this investment, you get Nav i.e. Net. Asset value.
how to open mutual fund account
But now what will be the further process for mutual fund i.e. what will have to be done for investment, for this the fund manager will give you a form and you will have to give some documents like your ID in which PAN card, Aadhar card, voter ID will be required. Account and KYC i.e. Know Your Customer should be complete. The bank account and your mutual fund selling company or mutual fund distributor open your account after doing your KYC.
Why is risk considered less in mutual funds?
Now the question is why risk is considered useful in mutual funds? A huge amount is invested in many companies instead of one company. Even if one company goes into loss, the other companies will survive, that is, the risk is quite less. The fund manager will take care of your investment. This is a long term investment and you can start with less money i.e. ₹ 100 to ₹ 500. How to choose a mutual fund? If you have 10 to 20 years time to invest, then you can invest in a bigger cup to save tax. If you are investing for Rs., then you will have to take funds in Equity Linked Savings Scheme or others in which your money will be blocked for 3 years. The licenses granted by this fund are considered large and mid cap funds.
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