What is Mutual Fund in 2023
In mutual funds, the money of many investors is deposited in one place and then this fund is invested in the market. Mutual funds are managed by AMCs (asset management companies). Each AMC usually has several mutual fund schemes.
Why invest in mutual funds?
Easy to manage: You can buy and sell many number of mutual funds on any given day. In this bank, you cannot buy or sell FD, PPF, or insurance on government holidays or Sundays.
Multiple Options: Mutual funds let you own multiple stocks and bonds for one small investment. The mutual fund you invest in is not invested in any one place. Rather, investments are made in different places so that even if there is a recession in one area, profits from other areas are reduced.
Low Fees: Mutual fund expense ratios typically range from 1.5-2.5% of your investment. The expense ratio is the fee you pay to the AMC to manage your fund (investment). It is low because many people invest in mutual funds and this fee is shared among everyone.
Transparency: Mutual funds are regulated by the Securities Exchange Board of India (SEBI) and their NAV (Net Asset Value) or price is declared daily. Every month their portfolio is also announced and various information about them is also given to the public.
How to Choose Mutual Fund
You first need to choose the type of fund you want to invest in. Broadly speaking, equity funds should be chosen only if you are willing to take high risk and have a time horizon of more than 5 years. If you can tolerate moderate risk, you can invest in hybrid funds. If you want to take less risk then you should invest in debt funds. Note, all mutual funds even debt funds carry some risk.
After choosing the type of fund you want to invest in, you can choose one of the funds. The fund can be selected by looking at and comparing its performance over a certain period. Some of the other factors you may also want to consider:
Fund management experience – How long has the fund managing company been managing the fund and what is its track record?
Portfolio – Is it a mutual fund that earns higher returns by investing in smaller companies with higher risk? You should also see whether that mutual fund is investing its money in one sector or different sectors. Also, see how much money you have invested in equity and how much in debt.
Expense Ratio – With a high expense ratio, you give away a larger portion of the profit you earn and thus your profit reduces.
If you want to know which fund is better according to our research? So fill out the form given above, log in to Paisabazaar.com, and get the information.
How to Invest in Mutual Fund
First of all, you have to get KYC done, this is for your identity. The process involves the submission of identity and address documents, such as Aadhaar and PAN cards. The KYC process at Paisabazaar is done online. Once your KYC is complete you will have to select a mutual fund and apply for payment. You can also do this process online at Paisabazaar with easy paperwork and minimal hassle.
Frequently Asked Questions about What is Mutual Fund?
Question. Is it safe to invest in mutual funds?
Answer: Mutual funds are market-linked investments and as such they can never be completely safe. However, they are subject to a variety of regulations to reduce risk and mutual funds invest money in different sectors, making them less risky than stocks or bonds.
Question. How do you make money from mutual funds?
Answer: There are two major ways to make money through mutual funds – time frame and growth. In the time frame, the investor invests for a fixed period and during that time he continues to get benefits from the scheme. This option is chosen by investors who want to maintain the investment and also earn profits. Also, there is no guarantee of profit in growth, investment buys and holds some units or shares, and the value of those units keeps increasing or decreasing with time. Only when the investor feels that it is the right time can he sell those units. Earns profits. Note that after Budget 2018, it is better to invest in growth options to save tax.
Question. What is the right time to invest in mutual funds?
Answer: Various studies have shown that it is better to invest early in the market rather than wait for the right time to invest. Do not wait for the market to improve as there is no fixed period of waiting. Therefore it is very difficult to make any prediction in this regard. Instead, look at how much risk you can take, and what your goal is, and invest without delay.
Question. Can you lose all your money in mutual funds?
Answer: Being market-linked, mutual funds involve risk, so there can be a loss of the principal amount invested. However, given the performance of mutual funds, the chances of losing all your money are low.
Question. How do growth stock mutual funds work?
Answer: There is no such thing as a growth stock mutual fund, although a growth option exists in the case of mutual funds. Growth funds provide profits from appreciation in value. Profit is realized when the investor sells his mutual fund units.
Question. What is the average rate of return (profit) on mutual funds?
Answer: In the long run, on average equity schemes give annual returns of around 12%, debt schemes around 8%, and hybrid schemes around 10%. However, since these are market-related investments, the past performance of a mutual fund scheme does not guarantee future returns.
Question. How do you calculate mutual fund returns?
Answer: The growth of a mutual fund scheme is calculated by the formula (Total Profit/Original Investment) x 100.
Question. What is NAV and how is NAV calculated?
Answer: NAV (Net Value Asset) is the value of a mutual fund unit. NAV is calculated using = (Total Fund Value – Total Fund Liabilities)/Total number of outstanding units of the scheme.
Question. What is the average interest rate of mutual funds?
Answer: Mutual funds are market-related investments and do not offer guaranteed returns. Therefore, returns are not guaranteed, but they are higher than various investments currently available in the market.
Question. How much money do you need to start investing in mutual funds?
Answer: The minimum investment amount may vary depending on the fund you invest in. However, you can deposit a minimum of Rs 500. Can invest.
Question. Can I sell mutual funds at any time?
Answer: Most mutual funds are open-ended, meaning you can sell them at any time. Generally, closed-end schemes have a lock-in period of 3-4 years. After this period you cannot extend their duration as per your wish. There is a third type of scheme in which mutual funds are locked in for some time, but become open-ended thereafter. For example, tax saving or ELSS. The lock-in period is 3 years. After this period, you can sell these funds at any time.
Question: Is investing in mutual funds tax-free?
Answer: No, mutual funds are subject to Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG) rules. Different types of taxes are imposed on different mutual funds like equity and debt. Dividend Distribution Tax (DDT) is applicable in the case of mutual fund dividends and tax is deducted at source according to the fund.
Question. What are open-ended or closed-ended funds?
Answer: Open-ended funds are funds in which you can invest and sell at any time. Closed-ended funds can be purchased from AMCs only during New Fund Offers (NFOs).
Question. What are SIP and Lumpsum?
Answer: Systematic Investment Plan or SIP invests a fixed amount in mutual funds at regular intervals. For example, invest Rs 10,000 in mutual funds every month. SIPs grow your investments and save you from getting caught in market overvaluations (bad times). SIPs are more profitable in equity funds and not in debt funds.
A lump sum investment is an investment made at one time. You should invest a lump sum only if you have full confidence in your investment. If the NAV of the fund increases continuously then the return will be higher than the lump sum.
