What are Mutual Funds?

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Mutual Funds

Mutual Funds
Mutual Funds

What are mutual funds?

It is a way to invest in which money is pooled to invest in stocks, bonds, etc.; it is an excellent way for people who don’t have a massive chunk of money (for stocks, real estate, gold, etc.) and knowledge of the stock market. Here a fund manager manages your funds, and it is dependent on his trades that decide your fortune.

Types of mutual funds:

1.  Equity Mutual Funds: In this, your money is invested in the stock market.

2.  Debt Mutual Funds: In this, your money is invested in debt, which means less risk as well as fewer returns.

3.  Hybrid Mutual Funds: In this, your money is invested in both equity and debt.

4.  Goal-oriented Funds: these are funds one makes for some specified goal in mind.

5.  Other Funds: Mainly index funds, in this money is in invested in the index.

A mutual fund gives small investors access to a professionally managed portfolio, but it has its demerit as well, such as you have to pay high brokerage, pay for management cost which is collected in terms of the expense ratio, and yes, you are dependent on the decisions of your fund manager.

Before choosing a mutual fund, you should have knowledge about:

1.  Expense ratio

2.  Past performance

3.  Your risk appetite

4.  Fund managers

5.  Size of the fund

Positive news for Mutual fund investors is that SEBI has given guidelines that 20% of the salary of fund managers must be given in terms of investment in the funds they manage.

In my opinion, one should have diversified investments, i.e., some in stocks, some in mutual funds, some in real estate, some in gold/silver, etc., some in crypto, and some in an emergency fund.

Mutual Funds
Mutual Funds

 

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